The input approach was used in 2005 based on government salaries for a number of occupations. Because of quality differences, productivity adjustments were made in Asia, Africa, and Western Asia. Regional linking factors were computed from compensation data from 75 countries representing all regions including Eurostat-OECD. The linking factors were computed without adjustments for productivity and independently of the regional PPPs.
Several efforts were made on this topic. A. Heston wrote the chapter on government for the ICP Book. A. Deaton prepared a paper on using government expenditures for education in a base country scaled by the proportion of the children attending school in each country. The Eurostat-OECD published a manual on methods to estimate PPPs based on government outputs.
There are several dimensions to comparing government services. While Eurostat-OECD moved to an output approach, other regions continued to use compensation. Developing countries, whether using inputs or outputs approach, faced the “quality” problem while the input-output-quality issues were dealt with region by region for comparisons and by the Global Office for global linking using productivity adjustments as was done in the 2005 round.
A working group examined the input/output/productivity and linking issues and produced recommendations for TAG consideration. The work plan includes an in-depth analysis of the 2005 compensation data used for linking to identify strengths and weaknesses in the data to determine if there was also a data quality problem; determine whether productivity adjustments need only be done for a subset of countries, and if so the criteria to determine the subset. The working group also made recommendations on how the regions should be linked given the different methodologies used.