Income Concepts and Productivity: Separating Production from Asset Revaluation and Its Implications for TFP

Productivity Research Notes (PRN Series), No. 2605. This note examines how alternative definitions of income and production—particularly the treatment of asset revaluation—affect the interpretation of TFP. Drawing on the framework of Diewert and Fox (2024), it emphasizes that SNA-based and Hicksian income concepts define distinct accounting objects rather than alternative measures of the same construct. It shows that including or excluding asset revaluation shifts the boundary between production and income, thereby changing the economic content of TFP. Removing revaluation effects from production reduces the influence of asset price fluctuations on capital input prices and yields a more stable indicator of production efficiency. The note underscores the need for conceptual alignment in cross-country and intertemporal productivity comparisons, particularly in economies with large asset shares such as land.