Difference Between Domestic Income And National Income

Difference Between Domestic Income And National Income

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Rashmi
Rashmi Karan
Manager - Content
Updated on Feb 9, 2024 10:35 IST

Domestic income and national income are two commonly used terms in economics. Many confuse these two terms. Hence, understanding the difference between these concepts is important for better understanding a country’s economic well-being. This article will explore the difference between domestic income and national income, along with their definitions and significance.

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Comparison Table – Domestic Income vs National Income

The key difference between domestic and national income is that domestic income measures the income earned within a country’s borders, while national income measures the total income earned by a country’s residents, regardless of the country they earned in.

  Domestic Income National Income
Definition Refers to the total income earned by residents of a country within the country’s borders. Refers to the total income earned by all country residents, including those living abroad.
Also referred to as  Personal income. Gross National Income (GNI).
Calculation National Income – Net Factor Income from Abroad (NFIA) Domestic Income + NFIA
Components Salaries, rents, interests, and profits earned within a country Salaries, rents, interests, and profits earned within a country’s limits and beyond by the country’s citizens.
Scope Includes economic activities within a country’s limits. Includes both domestic and foreign economic activities.
How to measure? Using national accounts. Using the balance of payments
Taxes Subjected to domestic taxes. Subjected to both domestic and foreign taxes.
Importance Helps to understand the economic well-being of its residents. Helps to estimate the global economic position of a country.
Currency Measured in domestic currency. Measured in both domestic and foreign currencies.
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What is Domestic Income?

Domestic income is the total amount of money earned by individuals and businesses within a country’s borders over a specific period, usually a year. It includes all forms of income, such as salaries, profits (net operating surplus), dividends, and interests earned by residents and businesses within the country’s geographical limits.

Domestic income is an important measure of a country’s economic activity and helps to determine its economic health. It also calculates important economic indicators such as gross domestic product (GDP) and the total value of all goods and services produced within a country’s borders over a given period.

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What is National Income?

National income is the total income earned by a country’s residents, including individuals and businesses, irrespective of their location within or outside the country’s borders. It is the sum of all income generated by the factors of production owned by a country’s residents, including salaries, profits, rents, and interests.

National income is calculated by adding up all of the income earned by the citizens of a country, regardless of where they earn that income. The Central Statistics Office (CSO), a governmental agency in India under the Ministry of Statistics and Programme Implementation, estimates India’s national income.

National income can be calculated in several ways, including the income, production, and expenditure approaches. 

  • The income approach adds up all the income residents earn. 
  • The production approach adds the values of all goods and services produced within a country’s borders. 
  • The expenditure approach calculates national income by adding all the spending on household, business, and government goods and services.

Overall, national income is an important economic indicator that helps policymakers make decisions about economic policy and measure the well-being of a country’s citizens. 

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Example

Assume a Company generates Rs. 50 million in revenue from its operations within India. The earned Rs. 50 million would be considered domestic income. 

However, if the same company also earns Rs. 10 million from its operations in Germany, its total income, including domestic and foreign, would be Rs. 60 million. This Rs. 60 million will be considered as national income.

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Conclusion

Domestic and national income are important for measuring a country’s economic performance, and policymakers use them to formulate economic policies and measure the impact of their policies on the economy. National income is a broader measure of a country’s economic activity than domestic income.

FAQs

How are domestic income and national income calculated?

Domestic income is calculated by adding up the total earnings of all individuals and businesses within a country. National income is calculated by adding up the total earnings of a country's citizens, including those living abroad.

Why is it important to distinguish between domestic income and national income?

It is important to distinguish between domestic and national income because they provide different perspectives on a country's economic health. National income considers all citizens' earnings, regardless of where they live, and provides a more comprehensive view of a country's economic well-being.

Can domestic income be higher than national income?

Yes! Domestic income can be higher than national income if the Net Factor Income from Abroad (NFIA) is negative.

How do international transactions affect domestic income and national income?

International transactions, such as exports and imports, affect domestic and national income. Exports increase domestic income by increasing earnings for businesses within a country, while imports decrease domestic income by reducing earnings for businesses within a country. National income is affected by international transactions in a similar way.

Which is better for a country's economic health - domestic or national income?

Neither domestic nor national income is a better measure of a country's economic health. Both measures provide different perspectives and can be useful in different contexts. National income is more comprehensive, but domestic income is more focused on the earnings of businesses and individuals within a country.

How does taxation impact domestic income and national income?

Taxation reduces both domestic income and national income. Taxes decrease the earnings of individuals and businesses, which reduces domestic income. Taxes also reduce the earnings of citizens, which reduces national income.

What are some limitations of using domestic and national income as measures of economic health?

One limitation of using domestic and national income as measures of economic health is that they do not consider factors such as income inequality, environmental impact, and quality of life. Additionally, both measures can be affected by external factors such as global economic trends and geopolitical events.

About the Author
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Rashmi Karan
Manager - Content

Rashmi is a postgraduate in Biotechnology with a flair for research-oriented work and has an experience of over 13 years in content creation and social media handling. She has a diversified writing portfolio and aim... Read Full Bio