Delineation Between General Government And Public Corporations Delineation Between General Government And Public Corporations Presentation Points IMF Statistics Department 9 th NBS-OECD Workshop On National Accounts Xiamen, November 14-18, 2005

1 Contents Of Presentation u Composition of Public Sector u Institutional Units – What is an institutional unit? – Types of institutional units u General Government Sector versus Public Corporations – General – Boundary issues

2 Definition Of Public Sector System of National Accounts 1993: The public sector consists of the national, regional, and local governments plus institutional units controlled by government units

3 The Public Sector Public Sector General government Central government State government Public Corporations Local government FinancialNonfinancial Public depositary corporations * Other public financial corporations * Including central bank

4 Institutional Unit u Institutional units are the basic building blocks of statistics describing income and financial transactions, other flows and balance sheets u The establishment is the unit used for the production account

5 Definition Of An Institutional Unit Definition Of An Institutional Unit An economic entity that is capable, in its own right, of owning assets, incurring liabilities, and engaging in economic activities and in transactions with other entities

6 Features Of An Institutional Unit – Able to own assets – Able to take economic decisions and engage in economic activity for which it is held responsible and accountable by law – Able to incur liabilities on its own behalf and enter into contractual relationships – Has a a complete set of accounts or it is possible and meaningful to compile a complete set of accounts if required

7 Types Of Institutional Units u Households u Legal and social entities, such as – Corporations – Quasi-corporations – Nonprofit institutions – Government units

8 Types Of Institutional Units u Corporations – Legal entities created for purpose of producing goods & services for market u Quasi-corporations – Unincorporated enterprises that function as if they were corporations – Must have a complete set of accounts and be sufficiently self-contained and independent

9 Types Of Institutional Units u Nonprofit institutions (NPIs) – Legal or social entities created for purpose of producing or distributing goods & services, but not a source of income or other financial gain for owners u Government units – Established by the political process – Carry out functions of government as primary activity – Provide goods & services to the community or households on a nonmarket basis – Redistributes income and wealth

10 EstablishmentsEstablishments u An establishment is an enterprise, or part of an enterprise, situated in a single location at which only a single productive activity is carried out, or where principal productive activity accounts for most of the value added.

11 Market And Non-market Establishments Within General Government – A market establishment sells or otherwise disposes of all or most of its output at economically significant prices Needs complete accounting records Not necessarily completes balance sheet Not engaging in financial transactions in its own name – Non-market establishments  All other establishments  General government has mostly nonmarket establishments

12 Definition Of Public Sector System of National Accounts 1993: The public sector consists of the national, regional, and local governments plus corporations controlled by government units

13 Government Control Of Another Unit Defined in the 1993 SNA as the ability to determine general corporate policy Proposed indicators are: u Control of board or other governing body u Control of the appointment and removal of key personnel u Control of key committees of the unit Cont next slide

14 Indicators Of Government Control Of Another Unit u Golden shares and options u Regulation and control u Control by a dominant customer u Control arising from borrowing from the government u Ownership of a majority of voting interest

15 Classification Of Public Sector Units Between General Government And Public Corporations u Generally based on whether a unit sells its output at market prices – If all or most of output is at market prices it is a corporation or quasi- corporation – All other are government units

16 Market Prices u Market prices for public units not always easy to identify u The criterion for distinguishing market from non-market prices is whether they are economically significant – That is the prices have a significant influence on amounts producers are willing to supply and amounts purchasers are willing to pay – Involves judgment after considering facts and circumstances

17 Economically Significant Prices u Broad guidelines for economically significant prices – Do not have to be so high to cover all costs of production to be economically significant. – But must be high enough to be of significance in purchasing decisions and decisions to produce.

18 “Quick” Decision Tree Who controls unit? PrivatePublic What is Nature of Activities? What does it do? Produce Market G & S Classify as: Public corporation Quasi-corporation Produce Non- Market G & S Classify as: Government unit NPI controlled by govt.