INSTITUTIONAL UNITS AND INSTITUTIONAL SECTORS Peter van de Ven Head of National Accounts, OECD NBS-OECD Workshop on National Accounts Guangzhou, December 2 – 5, 2014

2 Introduction Defining institutional units and institutional sectors Delineation between market and non-market Delineation between general government and Non-profit Institutions Serving Households (NPISHs) Some specificities of general government Some specificities of households Some specificities of financial corporations Overview of the institutional sector accounts Concluding remarks

3 Definition of institutional unit Institutional sector: grouping of institutional units Definition of institutional unit: –Entitled to own goods or assets in its own right –Able to take economic decisions –Able to incur liabilities on its own behalf –Complete set of accounts, including balance sheets Two main types of institutional units –Households –Units with independent legal status: legal or social entities –Note: quasi-corporations, notional resident units, subsidiaries of non-resident units

4 Main institutional sectors Groupings based on functions in the economy S.11: Non-financial corporations: Corporations principally engaged in the production of non-financial market goods and services S.12: Financial corporations: Corporations principally engaged in the production of financial market services S.13: Government: Institutional units engaged in the production of non-market goods and services, and redistribution of income S.14: Households: (Groups of) persons who share the same living accommodation, including unincorporated enterprises S.15: NPISHs: Non-profit institutions producing non-market goods and services, not controlled by government S.1: Total economy S.2: Rest of the World: Not a sectors, covers all transactions and positions with non-residents

5 Institutional unit clear cut? Institutional units not always that clear cut: –Legal unit, enterprise, enterprise group? –Holdings, head offices, SPEs? –Delineation of quasi-corporations? Often based on practical considerations May hamper international comparison

6 Consolidation impact across countries Consolidation effect for liabilities in loans of non-financial corporations, in % of GDP

7 Profit shares across countries Operating surplus as % of value added at factor costs, non-financial corporations

Delineation market vs. non-market (1) Principal function government: provision of goods and services to the community or to individual households and to finance their provision out of taxation or other incomes, to redistribute income and wealth by means of transfers, and to engage in non-market production (SNA 2008, para ); controlled by government –Provision of collective services –Provision of individual services free or at price that are not economically significant –Transfers related to redistribution of income and wealth Principal function NPISHs: provision of goods and services to households and to finance their provision out of subscription, transfers and/or donations, and to engage in non-market production; not controlled by government –Note: Not all non-profit institutions are NPISHs 8

Delineation market vs. non-market (2) Primary government units (central administration) rather straightforward Classification of extra budgetary units (and other NPIs): –Criterion 1: Separate institutional unit? No => consolidation with primary unit Yes => continue –Criterion 2: Market or non-market producer? Market => classification as non-financial or financial corporation Non-market => continue –Criterion 3: Controlled by government? No => classification as NPISH Yes => classification as general government unit 9

Delineation market vs. non-market (3) Non-market output: goods and (individual or collective) services produced by non-profit institutions serving households (NPISHs) or government that are supplied free, or at prices that are not economically significant, to other institutional units or the community as a whole (SNA 2008, para ) Economically significant prices: prices that have a significant effect on the amounts that producers are willing to supply and on the amounts purchasers wish to buy (SNA 2008, para. 6.95) Privately owned corporations => market (few exceptions) Public corporations (and NPIs): 50%-criterion (sales > 50% of production costs), but … … suppliers of services to general government Institutional set-up may have significant impact 10

Delineation general government vs. NPISHs –Criterion 3: Controlled by government? No => classification as NPISH Yes => classification as general government unit Control: The ability to determine the general policy or programme (SNA 2008, para – 4.93) Possible indicators: –Appointment of officers –Other provisions of enabling instruments –Contractual agreements –Degree of financing –Risk exposure 11

12 Further breakdown based on control Breakdown of non-financial corporations and financial corporations by ownership/control: –Public corporations –National private corporations –Foreign controlled corporations

13 Some specificities of government Further breakdown of government: –Central government –State government –Local government –Social security funds Public sector: general government plus public corporations (corporations owned and/or controlled by government)

14 Some specificities of government (and NPISHs) Measurement of non-market output No market price for services of government (and NPISHs) Alternative: estimate value of output by applying a method to arrive at a market equivalent price Sum of costs: –Intermediate consumption –Compensation employees –Consumption of fixed capital –Other taxes less subsidies on production –(Mark-up for profits = return on capital investments)

15 Measurement of non-market output Government (and NPISHs) consumes its own services Final consumption of government (and NPISHs) = Output of government (and NPISHs) minusOwn-account production of investment goods minusSales of goods and services plusGoods and services purchased from market producers for delivery to households free or at economically insignificant prices Volume measurement?

16 Some specificities of households Includes unincorporated enterprises (except quasi- corporations) Production of goods and services for own final use: –Production of goods included (e.g. subsistence farming in developing countries) –Owner-occupied housing included –Rationale: international comparability However: production of (other) unpaid services within households not included Value added broken down into compensation of employees, other taxes less subsidies on production, and mixed income

17 Some specificities of financial corporations Further breakdown of financial corporations: –S.121: Central Bank –S.122: Deposit-taking corporation, excluding Central Bank –S.123: Money market funds (MMF) –S.124: Non-MMF investment funds –S.125: Other financial intermediaries, excluding insurance corporations and pension funds –S.126: Financial auxiliaries –S.127: Captive financial institutions and money lenders –S.128: Insurance corporations –S.129: Pension funds

18 I. Production account Overview of the system

19 II.1.1 Generation of income account NFCFCGOVHHNPISH Not sectorized Total economy ROWTotal S.11S.12S.13S.14S.15S.1NS.1S.2S.1 + S.2 Resources: Net domestic product (mp)225,821,145,350,91,950,8395,8-- Total225,821,145,350,91,950,8395,8-- Uses: Compensation of employees161,214,545,615,61,9-238,81,2240,0 Taxes on production and imports2,20,30,50,80,055,158,9- Less: subsidies-2,6-0,1-0,8-0,40,0-4,3-8,2- B2n = Operating surplus or65,06,40,034,90,0-106,3-- mixed income Total225,821,145,350,91,950,8395,81,2- Overview of the system

20 II.1.2 Primary distribution of income Overview of the system

21 II.2 Secondary distribution of income Overview of the system

22 II.4 Use of income account NFCFCGOVHHNPISH Total economy ROWTotal S.11S.12S.13S.14S.15S.1S.2S.1 + S.2 Resources: Net disposable income29,022,0107,1231,73,9393,7-- Adjustm. for change in net equity---19,7- - of households on pension funds Total29,022,0107,1251,43,9413,4-- Uses: Final consumption expenditure--110,3228,84,1343,2-- Adjustm. for change in net equity-19,4--- 0,319,7 of households on pension funds B8n = Net saving29,02,6-3,222,6-0,250,8-- B12 = Current external balance ,6- Total29,022,0107,1251,43,9413,4-28,3- Overview of the system

23 III.1 Capital account Overview of the system

24 III.2 Financial account Overview of the system

25 III.3 Other changes in assets accounts Overview of the system

26 IV.3 Opening balance sheet Overview of the system

27 Overview of the system

28 Some concluding remarks Attention has changed from production to income and finance –Interrelationship between “real” economy and financial economy –Analysis of risks and vulnerabilities, among which price bubbles and interconnectedness –More attention for households, including distributional aspects –Etc. Considerable pressure to compile quarterly institutional sector accounts, including financial accounts and balance sheets Caveat: International comparison of data generally needs more careful analysis

Thank you for your attention! 29