Frequently Asked Questions
Guidelines for Citing BEA Information | ID: 1180 | Created: Feb-03-2017
From 2009 to 2015, in violation of U.S. environmental regulations, Volkswagen sold diesel vehicles equipped with software designed to allow vehicles to pass emissions tests without meeting U.S. emissions regulations. In the fourth quarter of 2016, the Department of Justice, along with a number of independent agencies and state governments, secured a $14.95 billion (at a quarterly rate) settlement with Volkswagen for their violations of environmental regulations. Settlement proceeds are earmarked to buy back or fix 580,000 affected cars, to forgive car loans, to mitigate environmental damage, and to fund emission technology research.
The effects of the settlement are reflected in the national income and product accounts (NIPAs) via the three components of the settlement: payments made to the federal government, to state governments, and to consumers.
The estimate for government current transfer receipts from business in the fourth quarter of 2016 includes a $4.95 billion ($19.8 billion at an annual rate) settlement between Volkswagen and the federal and state governments. The settlement included fines for the violation of environmental laws and the funds will be used for environmental mitigation and for research in zero emissions technology. The entire settlement was recorded in the NIPAs in the fourth quarter as a current business transfer payment to government.
The NIPA estimate of corporate profits will also recognize the large expense that Volkswagen accrued in the fourth quarter related to this settlement. The reduction in corporate profits will offset the increase in current business transfer payments that occurred as result of the settlement. Thus, there will be no net effect on gross domestic income.
The consumer compensation part of the settlement of about $10 billion at a quarterly rate ($40.1 billion at an annual rate) is a capital transfer from business to persons. Since Volkswagen is receiving cars in return for their payments, there is a smaller, offsetting capital transfer from persons to business. Based on BEA estimates of automobile units in stock and National Automobile Dealers Association data on trade-in prices, the value of the cars that will be returned is estimated to be $21.4 billion, with the resulting net value of these capital transactions equal to $18.7 billion.
Business current transfer payments to governments is shown in NIPA table 3.1, line 16. Quarterly estimates of the net capital transfers paid by business are shown in underlying NIPA table 5.11U, line 6.
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