Differences between National Income and Domestic Income
What is National Income?
National Income is defined as the total monetary value of all goods and services produced within a country during a given period. It represents an aggregate measure of national output or GDP and can be expressed in both nominal terms and real terms to ascertain whether economic growth is taking place at a constant rate (real) or at different rates (nominal).
It is also referred to as ‘GDP’ or Gross Domestic Product, which denotes the total net output produced by a nation during an accounting period. However, National Income can be measured in both nominal and real terms depending on the purpose of the analysis being undertaken.
For instance, when National Income is expressed in nominal terms, it refers to the total money value of a nation’s final output during an accounting period and can be calculated by adding up gross wage incomes, rent payments, rental income received from abroad, etc.
When National Income is expressed in real terms, for example when GDP is compared to a base year, it denotes the total net output in constant prices and can be calculated by adding up all the costs incurred from production units within a nation.
It is important to note that National Income doesn’t refer solely to the GDP of an economy but also includes income earned by its citizens abroad. In other words, when foreign income is included in National Income, it is known as ‘GNI’ or Gross National Income.
What is Domestic Income?
Domestic Income represents the total income earned by a country’s production units during an accounting period. It can be measured in terms of factor payments, such as wages and salaries (wage incomes), rent, interest received from abroad, etc., or in monetary terms, which is referred to as Gross National Product (GNP).
It is important to note that Domestic Income excludes net transfers, such as government subsidies and grants that are received from abroad. It also excludes indirect taxes paid by households on the goods and services they purchase during a given period.
Finally, it does not include income earned by non-residents and foreign residents, which is why it is also referred to as ‘Net National Income’.
It should also be noted that Domestic Income doesn’t represent the total income earned by a country or its citizens but only the factor payments made by them via its production units during an accounting period.
Domestic Income vs National Income: What is the difference?
- National Income is the total income earned by all the citizens of a country, whereas domestic income refers to the factor incomes earned by its production units.
- National Income is measured in monetary terms, as it denotes earnings from a nation’s economic activity and output during an accounting period. On the contrary, domestic income is measured in terms of factor incomes.
- National Income pertains to the total net output, whereas domestic income pertains to factor payments made by a nation during a particular period.
- When all production units are included under national income and when it is expressed in monetary terms, then it is called a national product. On the other hand, when it is expressed in terms of factor payments, then it is known as national income.
- National Income can be measured in both real and nominal terms to depict economic growth, whereas domestic income cannot be so measured.
- National Income is representative of the entire economy, whereas domestic income signifies a particular production unit in an economy.
- When ‘domestic income’ is expressed as ‘gross national product (GNP), it denotes the total net output earned by all citizens inside the country and when ‘national income’ is expressed as ‘gross domestic product (GDP), it denotes the total net output earned by all citizens within the country.
- National Income is a macroeconomic concept, whereas domestic income is microeconomic in nature and used to ascertain individual-level data for household consumption expenditure and savings.
- National income is a major determinant of the macroeconomic growth in an economy, as it determines the increase or decrease in monetary and real terms at which national output is growing over time. On the other hand, domestic income has no impact on economic growth because its sole purpose is to ascertain individual-level data for household consumption expenditure and savings.
- National income has no direct relationship with the concept of national product, as it is an accounting aggregate that represents the total net output earned by a nation during a given period. On the other hand, domestic income is directly related to the national product because it determines how much a nation is producing or not.
- National income pertains to the value of total final goods and services produced within a country, whereas domestic income refers to the factor payments made by an economy during an accounting period.