CONTENTS

CHAPTER 1.

GENERAL FEATURES

THE USES OF THE ESA

Framework for analysis and policy

Eight characteristics of ESA concepts

The 1995 ESA and the 1993 SNA

The 1995 ESA and the 1970 ESA

THE ESA AS A SYSTEM

Statistical units and their groupings

Institutional units and sectors

Local kind of activity units and industries

Resident and non-resident units; total economy and rest of the world

Flows and stocks

Flows

Transactions

Properties of transactions

Interactions versus intra-unit transactions

Monetary versus non-monetary transactions

Transactions with and without counterparts

Rearranged transactions

Rerouting

Partitioning

Recognizing the principal party to a transaction

Borderline cases

Other changes in assets

Other changes in the volume of assets and liabilities

Holding gains and losses

Stocks

The system of accounts and the aggregates

Rules of accounting

Terminology for the two sides of the accounts

Double entry/quadruple entry

Valuation

Special valuations concerning products

Valuation at constant prices

Time of recording

Consolidation and netting

Consolidation

Netting

Accounts, balancing items and aggregates

The sequence of accounts

The goods and services account

The rest of the world account

Balancing items

Aggregates

The input-output framework

CHAPTER 2.

UNITS AND GROUPING OF UNITS

THE LIMITS OF THE NATIONAL ECONOMY

THE INSTITUTIONAL UNITS

THE INSTITUTIONAL SECTORS

Non-financial corporations (S.11)

Subsector: Public non-financial corporations (S.11001)

Subsector: National private non-financial corporations (S.11002)

Subsector: Foreign controlled non-financial corporations (S.11003)

Financial corporations (S.12)

Subsector: The central bank (S.121)

Subsector: Other monetary financial institutions (S.122)

Subsector: Other financial intermediaries, except insurance corporations and pension funds (S.123)

Subsector: Financial auxiliaries (S.124)

Subsector: Insurance corporations and pension funds (S.125)

General government (S.13)

Subsector: Central government (S.1311)

Subsector: State government (S.1312)

Subsector: Local government (S.1313)

Subsector: Social security funds (S.1314)

Households (S.14)

Subsector: Employers (including own-account workers) (S.141 + S.142)

Subsector: Employees (S.143)

Subsector: Recipients of property incomes (S.1441)

Subsector: Recipients of pensions (S.1442)

Subsector: Recipients of other transfer incomes (S.1443)

Subsector: Others (S.145)

Non-profit institutions serving households (S.15)

Rest of the world (S.2)

Sector classification of producer units for main standard legal forms of ownership

LOCAL KIND-OF-ACTIVITY UNITS AND INDUSTRIES

The local kind-of-activity unit

The industry

CLASSIFICATION OF INDUSTRIES

UNITS OF HOMOGENEOUS PRODUCTION AND HOMOGENEOUS BRANCHES

The unit of homogeneous production

The homogeneous branch

THE CLASSIFICATION OF HOMOGENEOUS BRANCHES

CHAPTER 3.

TRANSACTIONS IN PRODUCTS

PRODUCTION AND OUTPUT

Principal, secondary and ancillary activities

Output (P.1)

Time of recording and valuation of output

INTERMEDIATE CONSUMPTION (P.2)

Time of recording and valuation of intermediate consumption

FINAL CONSUMPTION (P.3, P.4)

Final consumption expenditure (P.3)

Actual final consumption (P.4)

Time of recording and valuation of final consumption expenditure

Time of recording and valuation of actual final consumption

GROSS CAPITAL FORMATION (P.5)

Gross fixed capital formation (P.51)

Time of recording and valuation of gross fixed capital formation

Changes in inventories (P.52)

Time of recording and valuation of changes in inventories

Acquisitions less disposals of valuables (P.53)

IMPORTS AND EXPORTS OF GOODS AND SERVICES (P.6 AND P.7)

Imports and exports of goods (P.61 and P.71)

Imports and exports of services (P.62 and P.72)

TRANSACTIONS IN EXISTING GOODS

CHAPTER 4.

DISTRIBUTIVE TRANSACTIONS

COMPENSATION OF EMPLOYEES (D.1)

Wages and salaries (D.11)

Wages and salaries in cash

Wages and salaries in kind

Employers' social contributions (D.12)

Employers' actual social contributions (D.121)

Employers' imputed social contributions (D.122)

TAXES ON PRODUCTION AND IMPORTS (D.2)

Taxes on products (D.21)

Value added type taxes (VAT) (D.211)

Taxes and duties on imports excluding VAT (D.212)

Taxes on products, except VAT and import taxes (D.214)

Other taxes on production (D.29)

Taxes on production and imports paid to the institutions of the European Union

SUBSIDIES (D.3)

Subsidies on products (D.31)

Import subsidies (D.311)

Other subsidies on products (D.319)

Other subsidies on production (D.39)

PROPERTY INCOME (D.4)

Interest (D.41)

Interest on deposits, loans and accounts receivable and payable

Interest on securities

Interest on bills and similar short-term instruments

Interest on bonds and debentures

Interest rate swaps and forward rate agreements

Interest on financial leases

Other interest

Time of recording

Distributed income of corporations (D.42)

Dividends (D.421)

Withdrawals from the income of quasi-corporations (D.422)

Reinvested earnings on direct foreign investment (D.43)

Property income attributed to insurance policy holders (D.44)

Rents (D.45)

Rents on land

Rents on sub-soil assets

CURRENT TAXES ON INCOME, WEALTH, ETC. (D.5)

Taxes on income (D.51)

Other current taxes (D.59)

SOCIAL CONTRIBUTIONS AND BENEFITS (D.6)

Social contributions (D.61)

Actual social contributions (D.611)

Imputed social contributions (D.612)

Social benefits other than social transfers in kind (D.62)

Social security benefits in cash (D.621)

Private funded social benefits (D.622)

Unfunded employee social benefits (D.623)

Social assistance benefits in cash (D.624)

Social transfers in kind (D.63)

Social benefits in kind (D.631)

Social security benefits, reimbursements (D.6311)

Other social security benefits in kind (D.6312)

Social assistance benefits in kind (D.6313)

Transfers of individual non-market goods or services (D.632)

OTHER CURRENT TRANSFERS (D.7)

Net non-life insurance premiums (D.71)

Non-life insurance claims (D.72)

Current transfers within general government (D.73)

Current international cooperation (D.74)

Miscellaneous current transfers (D.75)

Current transfers to NPISHs

Current transfers between households

Fines and penalties

Lotteries and gambling

Payments of compensation

GNP based fourth own resource

Other

ADJUSTMENT FOR THE CHANGE IN THE NET EQUITY OF HOUSEHOLDS IN PENSION FUNDS RESERVES (D.8)

CAPITAL TRANSFERS (D.9)

Capital taxes (D.91)

Investment grants (D.92)

Other capital transfers (D.99)

CHAPTER 5.

FINANCIAL TRANSACTIONS

CLASSIFICATION OF FINANCIAL TRANSACTIONS

Monetary gold and special drawing rights (SDRS) (F.1)

Monetary gold (F.11)

Special drawing rights (SDRS) (F.12)

Currency and deposits (F.2)

Currency (F.21)

Transferable deposits (F.22)

Other deposits (F.29)

Securities other than shares (F.3)

Securities other than shares, excluding financial derivatives (F.33)

Short-term securities other than shares, excluding financial derivatives (F.331)

Long-term securities other than shares, excluding financial derivatives (F.332)

Financial derivatives (F.34)

Loans (F.4)

Short-term loans (F.41)

Long-term loans (F.42)

Shares and other equity (F.5)

Shares and other equity, excluding mutual funds shares (F.51)

Quoted shares, excluding mutual funds shares (F.511), and unquoted shares, excluding mutual funds shares (F.512)

Other equity (F.513)

Mutual funds shares (F.52)

Insurance technical reserves (F.6)

Net equity of households in life insurance reserves and in pension funds reserves (F.61)

Net equity of households in life insurance reserves (F.611)

Net equity of households in pension funds reserves (F.612)

Prepayments of insurance premiums and reserves for outstanding claims (F.62)

Other accounts receivable/payable (F.7)

Trade credits and advances (F.71)

Other accounts receivable/payable, excluding trade credits and advances (F.79)

Memorandum item: direct foreign investment (F.m)

ACCOUNTING RULES FOR FINANCIAL TRANSACTIONS

Valuation

Time of recording

Compiling financial transactions from changes in balance sheets

Annex 5.1: Link with measures of money

CHAPTER 6.

OTHER FLOWS

CONSUMPTION OF FIXED CAPITAL (K.1)

ACQUISITIONS LESS DISPOSALS OF NON-FINANCIAL NON-PRODUCED ASSETS (K.2)

OTHER CHANGES IN ASSETS (K.3 to K.12)

OTHER CHANGES IN VOLUME (K.3 to K.10 AND K.12)

ECONOMIC APPEARANCE OF NON-PRODUCED ASSETS (K.3)

ECONOMIC APPEARANCE OF PRODUCED ASSETS (K.4)

NATURAL GROWTH OF NON-CULTIVATED BIOLOGICAL RESOURCES (K.5)

ECONOMIC DISAPPEARANCE OF NON-PRODUCED ASSETS (K.6)

CATASTROPHIC LOSSES (K.7)

UNCOMPENSATED SEIZURES (K.8)

OTHER VOLUME CHANGES IN NON-FINANCIAL ASSETS N.E.C. (K.9)

OTHER VOLUME CHANGES IN FINANCIAL ASSETS AND LIABILITIES N.E.C. (K.10)

CHANGES IN CLASSIFICATIONS AND STRUCTURE (K.12)

Changes in sector classification and structure (K.12.1)

Changes in classification of assets and liabilities (K.12.2)

NOMINAL HOLDING GAINS/LOSSES (K.11)

Neutral holding gains/losses (K.11.1)

Real holding gains/losses (K.11.2)

Holding gains by type of financial asset

Currency and deposits (AF.2)

Loans (AF.4) and other accounts receivable/payable (AF.7)

Securities other than shares (AF.3)

Shares and other equity (AF.5)

Insurance technical reserves (AF.6)

Financial assets in foreign currency

CHAPTER 7.

BALANCE SHEETS

TYPES OF ASSETS

Non-financial produced assets (AN.1)

Non-financial non-produced assets (AN.2)

Financial assets and liabilities (AF)

VALUATION OF ENTRIES IN THE BALANCE SHEETS

General valuation principles

NON-FINANCIAL ASSETS (AN)

Produced assets (AN.1)

Fixed assets (AN.11)

Tangible fixed assets (AN.111)

Intangible fixed assets (AN.112)

Inventories (AN.12)

Valuables (AN.13)

Non-produced assets (AN.2)

Tangible non-produced assets (AN.21)

Land (AN.211)

Subsoil assets (AN.212)

Other natural assets (AN.213 and AN.214)

Intangible non-produced assets (AN.22)

Financial assets and liabilities (AF)

Monetary gold and SDRs (AF.1)

Currency and deposits (AF.2)

Securities other than shares (AF.3)

Loans (AF.4)

Shares and other equity (AF.5)

Insurance technical reserves (AF.6)

Other accounts receivable/payable (AF.7)

Memorandum items

Consumer durables (AN.m)

Direct foreign investment (AF.m)

Financial balance sheets

Annex 7.1: Definition of each asset category

Annex 7.2: A map of entries from opening balance sheet to closing balance sheet

CHAPTER 8.

SEQUENCE OF ACCOUNTS AND BALANCING ITEMS

SEQUENCE OF ACCOUNTS

Current accounts

Production account (I)

Distribution and use of income accounts (II)

Primary distribution of income accounts (II.1)

Generation of income account (II.1.1)

Allocation of primary income account (II.1.2)

Entrepreneurial income account (II.1.2.1)

Allocation of other primary income account (II.1.2.2)

Secondary distribution of income account (II.2)

Redistribution of income in kind account (II.3)

Use of income account (II.4)

Use of disposable income account (II.4.1)

Use of adjusted disposable income account (II.4.2)

Accumulation accounts (III)

Capital account (III.1)

Change in net worth due to saving and capital tranfers account (III.1.1)

Acquisitions of non-financial assets account (III.1.2)

Financial account (III.2)

Other changes in assets account (III.3)

Other changes in volume of assets account (III.3.1)

Revaluation account (III.3.2)

Neutral holding gains and losses account (III.3.2.1)

Real holding gains and losses account (III.3.2.2)

Balance sheets (IV)

Opening balance sheet (IV.1)

Changes in balance sheet (IV.2)

Closing balance sheet (IV.3)

REST OF THE WORLD ACCOUNTS (V)

Current accounts

External account of goods and services (V.I)

External account of primary incomes and current transfers (V.II)

External accumulation accounts (V.III)

Capital account (V.III.1)

Financial account (V.III.2)

Other changes in assets account (V.III.3)

Balance sheets (V.IV)

GOODS AND SERVICES ACCOUNT (0)

INTEGRATED ECONOMIC ACCOUNTS

AGGREGATES

Gross domestic product at market prices (GDP)

Operating surplus of the total economy

Mixed income of the total economy

Entrepreneurial income of the total economy

National income (at market prices)

National disposable income

Saving

Current external balance

Net lending (+) or borrowing (-) of the total economy

Net worth of the total economy

GENERAL GOVERNMENT EXPENDITURE AND REVENUE

MATRIX PRESENTATION

Matrix presentation of ESA accounts

Properties of accounting matrices

Adaptation of the reduced format matrix to specific types of analysis

CHAPTER 9.

INPUT-OUTPUT FRAMEWORK

SUPPLY AND USE TABLES

TABLES LINKING THE SUPPLY AND USE TABLES TO THE SECTOR ACCOUNTS

SYMMETRIC INPUT-OUTPUT TABLES

CHAPTER 10.

PRICE AND VOLUME MEASURES

SCOPE OF PRICE AND VOLUME INDICES IN THE ACCOUNTS SYSTEM

The integrated system of price and volume indices

Price and volume indices for other aggregates

GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICES

Definition of prices and volumes of market products

Differences in quality and differences in price

Principles for non-market services

Principles for value added and GDP

PROBLEMS IN THE APPLICATION OF THE PRINCIPLES

General application

Application to specific flows

Flows of goods and market services

Flows of non-market services

Taxes and subsidies on products and imports

Consumption of fixed capital

Compensation of employees

Stocks of produced fixed assets and inventories

Measures of real income for the total economy

CHOICE OF INDEX NUMBER FORMULAE AND THE BASE YEAR

INTERSPACIAL PRICE AND VOLUME INDICES

CHAPTER 11.

POPULATION AND LABOUR INPUTS

TOTAL POPULATION

ECONOMICALLY ACTIVE POPULATION

EMPLOYMENT

Employees

Self-employed persons

Employment and residence

UNEMPLOYMENT

JOBS

Jobs and residence

TOTAL HOURS WORKED

FULL-TIME EQUIVALENCE

EMPLOYEE LABOUR INPUT AT CONSTANT COMPENSATION

CHAPTER 12.

QUARTERLY ECONOMIC ACCOUNTS

CHAPTER 13.

REGIONAL ACCOUNTS

REGIONAL TERRITORY

UNITS AND RESIDENCE

METHODS OF REGIONALIZATION

AGGREGATES BY INDUSTRY

HOUSEHOLD ACCOUNTS

ANNEXES

I. FINANCIAL INTERMEDIATION SERVICES INDIRECTLY MEASURED (Fisim)

Changes to be made in the ESA chapters if Fisim is to be allocated

II. LEASING AND HIRE PURCHASE OF DURABLE GOODS

Definitions

Leasing

Operating leasing

Financial leasing

Hire purchase

Treatment in the accounts

Operating leasing

Financial leasing

Hire purchase

III. INSURANCE

Introduction

Definitions

Social insurance

Social security schemes of government

Private funded social insurance schemes

Unfunded social insurance schemes operated by employers

Other insurance

Other life insurance

Other non-life insurance

Reinsurance

Insurance auxiliaries

Treatment in the accounts

Social insurance

Social security schemes of government

Private funded social insurance schemes

Unfunded social insurance schemes operated by employers

Other insurance

Other life insurance

Other non-life insurance

Reinsurance

Insurance auxiliaries

Insurance numerical example

IV. CLASSIFICATIONS AND ACCOUNTS

Classifications

Classification of institutional sectors (S)

Classification of transactions and other flows

Classification of balancing items (B)

Classification of assets (A)

Regrouping and coding of industries (A*), products (P*) and fixed assets (fixed capital formation) (AN)

Classification of individual consumption by purpose (Coicop)

Classification of the functions of the government (Cofog)

Classification of the purposes of non-profit institutions serving householdS (Copni)

Accounts

V. DEFINITION OF GOVERNMENT DEFICIT FOR THE PURPOSE OF THE EXCESSIVE DEFICIT PROCEDURE

Tables

2.1

Sectors and sub-sectors

2.2

The type of producer, the principal activities and functions classified by sector

2.3

Sector classification of producer units for main standard legal forms of ownership

3.1

The distinction between market producers, producers for own final use and other non-market producers for institutional units

3.2

Institutional units, local KAUs and output and the distinction between market, for own final use and other non-market

3.3

The distinction market, for own final use and other non-market for local KAUs and their output

3.4

The treatment of transportation of exported goods

3.5

The treatment of transportation of imported goods

5.1

Classification of financial transactions

8.1

Synoptic presentation of the accounts, balancing items and main aggregates

8.2

Account I: Production account

8.3

Account II.1.1: Generation of income account

8.4

Account II.1.2.: Allocation of primary income account

8.5

Accounts II.1.2.1: Entrepreneurial income and II.1.2.2: Allocation of other primary income

8.6

Account II.2: Secondary distribution of income account

8.7

Account II.3: Redistribution of income in kind account

8.8

Account II.4.1: Use of disposable income account

8.9

Account II.4.2: Use of adjusted disposable income account

8.10

Account III.1.1: Change in net worth due to saving and capital transfers account

8.11

Account III.1.2: Acquisition of non-financial assets account

8.12

Account III.2: Financial account

8.13

Account III.3.1: Other changes in volume of assets account

8.14

Account III.3.2: Revaluation account

8.15

Account IV: Balance sheets

8.16

Full sequence of accounts for rest of the world (external transactions account)

8.17

Account 0: Goods and services account

8.18

Integrated economic accounts

8.19

Matrix presentation of the full sequence of accounts and balancing items for the total economy

8.20

Schematic presentation of a Social Accounting Matrix

8.21

Example of a more detailed Social Accounting Matrix

8.22

Example of a detailed submatrix: Net value added (basic prices)

9.1

A simplified supply table

9.2

A simplified use table

9.3

A simplified combined supply and use table

9.4

A simplified symmetric input-output table (product by product)

9.5

A supply table at basic prices, including a transformation into purchaser's prices

9.6

A use table at purchaser's prices

9.7

A simple trade and transport margins table

9.8

A simple taxes less subsidies on products table

9.9

A use table for imports

9.10

A use table at basic prices for domestic output

9.11

Table linking the supply and use tables to the sector accounts

9.12

A symmetric input-output table at basic prices (product by product)

9.13

A symmetric input-output table for domestic output (product by product)

A.I.1

Effect of allocating FISIM to institutional sectors, including changes for non-market producers

A.I.2

Effect to allocating FISIM to nominal sector only

A.III.1

Social security schemes of Government

A.III.2

Private funded social insurance schemes

A.III.3

Unfunded schemes operated by employers

A.III.4

Other life insurance

A.III.5

Other non-life insurance

A.IV.1

Account 0: Goods and services account

A.IV.2

Full sequence of accounts for the total economy

A.IV.3

Full sequence of accounts for non-financial corporations

A.IV.4

Full sequence of accounts for financial corporations

A.IV.5

Full sequence of accounts for general government

A.IV.6

Full sequence of accounts for households

A.IV.7

Full sequence of accounts for non-profit institutions serving households

1.01.

The European System of National and Regional Accounts (1995 ESA, or simply: ESA) is an internationally compatible accounting framework for a systematic and detailed description of a total economy (that is a region, country or group of countries), its components and its relations with other total economies.

The 1995 ESA, replaces the European System of Integrated Economic Accounts published in 1970 (1970 ESA; a second, slightly modified, edition appeared in 1978).

The 1995 ESA is fully consistent with the revised world-wide guidelines on national accounting, the System of National Accounts (1993 SNA, or simply: SNA; these guidelines have been produced under the joint responsibility of the United Nations, the IMF, the Commission of the European Communities, the OECD and the World Bank). However, the ESA is focused more on the circumstances and data needs in the European Union. Like the SNA, the ESA is harmonized with the concepts and classifications used in many other, social and economic statistics. Cases in point are statistics on employment, statistics on manufacturing and statistics on external trade. The ESA can therefore serve as the central framework of reference for the social and economic statistics of the European Union and its Member States.

1.02.

The ESA framework consists of two main sets of tables:

The sector accounts provide, by institutional sector, a systematic description of the different stages of the economic process: production, generation of income, distribution of income, redistribution of income, use of income and financial and non-financial accumulation. The sector accounts also include balance sheets to describe the stocks of assets, liabilities and net worth at the beginning and the end of the accounting period.

The input-output framework and the accounts by industry describe in more detail the production process (cost structure, income generated and employment) and the flows of goods and services (output, imports, exports, final consumption, intermediate consumption and capital formation by product group).

The ESA encompasses concepts of population and employment ( 16 ). These concepts are relevant for both the sector accounts and the input-output framework.

The ESA is not restricted to annual national accounting, but applies also to quarterly accounts ( 17 ) and regional accounts ( 18 ).

1.03.

The ESA framework can be used to analyse and evaluate:

1.04.

For the European Union and its Member States, the figures from this framework play a major role in formulating and monitoring their social and economic policy.

Furthermore, there are some very important specific uses:

1.05.

In order to establish a good balance between data needs and data possibilities, the concepts in the ESA have eight important characteristics. They are:

1.06.

The concepts are internationally compatible because:

International compatibility of concepts is crucial when comparing statistics for different countries.

1.07.

The concepts are harmonized with those in other social and economic statistics because:

This harmonization with other, social and economic statistics greatly aids the linkage to and comparison with these figures. As a consequence, better national accounts figures can be compiled. Furthermore, the information contained in these specific statistics can now be better related to the general statistics on the national economy, i.e. the national accounts figures like GNP or value added per industry and sector.

1.08.

The identities in the accounting framework enforce the consistency of the concepts used to describe the different parts of the economic process (production, income distribution, use of income, accumulation). As a result of this internal consistency, statistics from different parts of the accounting framework can be usefully related to each other. So, for example, the following ratios can be calculated:

This internal consistency of concepts also allows some estimates to be derived by residual, e.g. saving can be estimated as the difference between disposable income and final consumption expenditure ( 19 ).

1.09.

The concepts in the ESA are operational concepts since they are designed with their measurement in mind. The operational character of the concepts is revealed in several ways:

1.10.

However, at the same time, the concepts are not always easy to put into operation as they usually diverge in some respects from those employed in administrative data sources. Cases in point are business accounts, data on various types of taxes (VAT, personal income tax, import levies, etc.), social security data and data from supervisory boards on banking and insurance. These administrative data often serve as inputs for compiling the national accounts. In general, they will therefore have to be transformed in order to comply with the ESA.

The concepts in the ESA usually differ in some respects from their administrative counterparts because:

Nevertheless, sometimes, administrative data sources meet the data needs of national accounts and other statistics very well, because:

1.11.

The main concepts in the ESA are well-established and fixed for a long period, because:

This conceptual continuity reduces the need to recalculate time series and to learn new concepts. Furthermore, it limits the vulnerability of the concepts to national and international political pressure. For these reasons, the national accounts figures have been able to serve as an objective data base for economic policy and analysis for decades.

1.12.

The ESA concepts are focused on describing the economic process in monetary and readily observable terms. For the most part, stocks and flows that are not readily observable in monetary terms, or that do not have a clear monetary counterpart are not taken into account.

This principle has not been applied strictly, because account should also be taken of the requirement of consistency and the various data needs. For example, consistency requires that the value of collective services produced by government is recorded as output, because the payment of compensation of employees and the purchase of all kinds of goods and services by government are readily observable in monetary terms.

Furthermore, for the purposes of economic analysis and policy, describing the collective services of government in relation to the rest of the national economy increases also the usefulness of the national accounts as a whole.

1.13.

The scope of the concepts in the ESA can be illustrated by considering some important borderline issues.

The following fall within the production boundary of the ESA (see paragraphs 3.07. to 3.09.):

The following fall outside the production boundary:

In general, the ESA records all outputs that result from production within the production boundary. However, there are some specific exceptions to this rule:

The accounting logic of the ESA implies that if activities are regarded as production and their output is to be recorded, then the concomitant income, employment, final consumption, etc. are also to be recorded. For example, as the own-account production of housing services by owner-occupiers is recorded as production, so is the income and final consumption expenditure it generates for these owner-occupiers. The reverse holds when activities are not recorded as production: domestic services produced and consumed within the same household do not generate income and final consumption expenditure and according to the ESA concepts, no employment is involved.

The ESA also contains many specific conventions, e.g.:

1.14.

The concepts in the ESA are multi-purpose: for a great range of uses the ESA concepts will be acceptable, though they may need to be supplemented for some uses (see paragraph 1.18.).

1.15.

The detail in the conceptual framework of the ESA offers the opportunity for flexible use: some concepts are not explicitly present in the ESA but can nevertheless easily be derived from it. For example, value added at factor cost can be derived by subtracting net other taxes on production from value added at basic prices. Another case in point is the creation of new sectors by rearranging the subsectors defined in the ESA.

1.16.

Flexible use is also possible by introducing additional criteria which do not conflict with the logic of the system. For example, these criteria might be the scale of employment for producer units or the size of income for households. For employment, subclassification by level of education, age and sex can be introduced.

1.17.

This flexible use may be incorporated in a Social Accounting Matrix (SAM). The SAM is a matrix presentation which elaborates the linkages between supply and use tables and the sector accounts (see paragraphs 8.133. to 8.155). A SAM commonly provides additional information on the level and composition of (un)employment, via a subdivision of compensation of employees by type of person employed. This subdivision applies to both the use of labour by industry, as shown in the use tables, and the supply of labour by socio-economic subgroup, as shown in the allocation of primary income account for subsectors of the sector households. In this way, the supply and use of various categories of labour is shown systematically.

1.18.

For some specific data needs the best solution is to draw up separate satellite accounts. Cases in point are the data needs for e.g.:

1.19.

Satellite accounts can serve such data needs by:

1.20.

An important feature of the satellite accounts is that in principle all basic concepts and classifications of the standard framework are retained. Only when the specific purpose of the satellite account definitely requires a modification, are changes in the basic concepts introduced. In such instances, the satellite account should also contain a table showing the link between the major aggregates in the satellite account and those in the standard framework. In this way, the standard framework retains its role as a framework of reference and at the same time justice is done to more specific needs.

1.21.

The standard framework does not pay much attention to stocks and flows which are not readily observable in monetary terms (or without a clear monetary counterpart). By their nature, the analysis of such stocks and flows is usually also well served by compiling statistics in non-monetary terms, e.g.:

The satellite accounts offer a possibility to link such statistics in non-monetary units to the standard national accounts framework. The linkage is possible by using for these non-monetary statistics, as far as possible, the classifications employed in the standard framework, e.g. the classification by type of household or the classification by industry. In this way, a consistent extended framework is drawn up. This framework can then serve as a data base for the analysis and evaluation of all kinds of interactions between the variables in the standard framework and those in the extended part.

1.22.

The standard framework and its major aggregates do not describe changes in welfare. Extended accounts can be drawn up which include also the imputed monetary values of, e.g.:

They can also reclassify the final expenditure on regrettable necessities (e.g. defence) as intermediate consumption, i.e. as not contributing to welfare. Similarly, the damage due to floods and other natural disasters could be classified as intermediate consumption, i.e. as a reduction in (absolute) welfare.

In this way, one could try to construct a very rough and very imperfect indicator of changes in welfare. However, welfare has many dimensions, most of which are best not expressed in monetary terms. A better solution for measuring welfare is therefore to use, for each dimension, separate indicators and units of measurement. The indicators could be, for example, infant mortality, life expectancy, adult literacy and national income per capita. These indicators could be incorporated in a satellite account.

1.23.

In order to attain a consistent, internationally compatible framework, administrative concepts are not employed in the ESA. However, for all kinds of national purposes, obtaining figures based on administrative concepts can be very useful. For example, for estimating tax revenues statistics of taxable income are required. These statistics can be provided by making some modifications to the national accounts statistics.

A similar approach could be taken for some concepts used in national economic policy, e.g. for:

Satellite accounts or simple supplementary tables could meet such, usually specifically national, data needs.

1.24.

The ESA (the 1995 ESA) is fully consistent with the revised System of National Accounts (the 1993 SNA), which provides guidelines on national accounting for all countries throughout the world. Nevertheless, there are several differences between the 1995 ESA and the 1993 SNA:

The ESA can be more specific than the SNA, because the ESA primarily applies to the European Union Member States. For the data needs of the European Union, the ESA should also be more specific.

1.25.

The 1995 ESA differs in scope as well as in concepts from the 1970 ESA. Most of these differences correspond to differences between the 1968 SNA and 1993 SNA. Some of these major differences in scope are:

Some of the major differences in concepts are:

There are also differences that do not result from changes in the SNA, e.g.:

1.26.

The main features of the system are:

1.27.

A characteristic feature of the system is the use of two types of unit and two ways of subdividing the economy which are quite different and serve separate analytical purposes.

In order to describe income, expenditure and financial flows, and balance sheets, the system groups institutional units into sectors on the basis of their principal functions, behaviour and objectives.

In order to describe processes of production and for input-output analysis, the system groups local kind-of-activity units (local KAUs) into industries on the basis of their type of activity. An activity is characterized by an input of products, a production process and an output of products.

1.28.

Institutional units are economic entities that are capable of owning goods and assets, of incurring liabilities of engaging in economic activities and transactions with other units in their own right. For the purposes of the system, the institutional units are grouped together into five mutually exclusive institutional sectors composed of the following types of units:

The five sectors together make up the total economy. Each sector is also divided into subsectors. The system makes provision for a complete set of flow accounts and balance sheets to be compiled for each sector, and subsector if desired, as well as for the total economy.

1.29.

Most institutional units in their capacity as producers carry out more than one activity; to emphasize relationships of a technico-economic kind, they have to be partitioned with regard to the type of activity.

Local kind-of-activity units are intended to meet this requirement as an operational approach. A local KAU groups all the parts of an institutional unit in its capacity as producer which are located in a single or closely located sites, and which contribute to the performance of an activity at the class level (four digits) of the ►M11  NACE Rev. 2 ◄ .

In principle, as many local kind-of-activity units must be registered as there are secondary activities; however, if the accounting documents that would be necessary to describe such activities are not available, a local kind-of-activity unit may include one or several secondary activities.

The group of all local KAUs engaged on the same, or similar, kind-of-activity constitutes an industry.

There is a hierarchical relationship between institutional units and local KAUs. An institutional unit contains one or more entire local KAUs; a local KAU belongs to one and only one institutional unit.

For more refined analysis of the production process, use is made of an analytical unit of production. This unit, which is not observable (except in the case of a local KAU only producing one type of product), is the unit of homogeneous production, defined as covering no secondary activities. Groupings of these units constitute homogeneous branches.

1.30.

The total economy is defined in terms of resident units. A unit is said to be a resident unit of a country when it has a centre of economic interest on the economic territory of that country — that is, when it engages for an extended period (one year or more) in economic activities on this territory. The institutional sectors referred to above are groups of resident institutional units.

Resident units engage in transactions with non-resident units (that is, units which are residents in other economies). These transactions are the external transactions of the economy and are grouped in the Rest of the World account. So, in the system's accounting structure, the rest of the world plays a role similar to that of an institutional sector, although non-resident units are included only in so far as they are engaged in transactions with resident institutional units. Consequently, as far as coding of classifications is concerned, a specific item for the rest of the world is included at the end of the classification of sectors.

Notional resident units, treated in the system as institutional units, are defined as:

1.31.

The system records two basic kinds of information: flows and stocks. Flows refer to actions and effects of events that take place within a given period of time, while stocks refer to positions at a point of time.

1.32.

Flows reflect the creation, transformation, exchange, transfer or extinction of economic value. They involve changes in the value of an institutional unit's assets or liabilities. Economic flows are of two kinds: transactions, and other changes in assets. Transactions appear in all accounts and tables where flows appear, except the other changes in volume of assets account and the revaluation account. Other changes in the assets appear only in these two accounts.

Elementary transactions and other flows are innumerable. The system groups them into a relatively small number of types according to their nature.

1.33.

A transaction is an economic flow that is an interaction between institutional units by mutual agreement or an action within an institutional unit that it is useful to treat as a transaction, often because the unit is operating in two different capacities. It is convenient to divide transactions into four main groups:

1.34.

Most transactions are interactions between two or more institutional units. However, the system records some actions within institutional units as transactions. The purpose of recording these intra-unit transactions is to give a more analytically useful picture of output, final uses and costs.

Consumption of fixed capital, which is recorded as a cost by the system, is an important intra-unit transaction. Most of the other intra-unit transactions are transactions in products, typically recorded when institutional units operating as both producers and final consumers choose to consume some of the output they have produced themselves. This is often the case for households and general government.

1.35.

All own-produced output used for final uses within the same institutional unit is recorded. Own-produced output used for intermediate consumption within the same institutional unit is recorded only when production and intermediate consumption take place in different local kind-of-activity units within the same institutional unit. Output produced and used as intermediate consumption within the same local kind-of-activity unit is not recorded.

1.36.

Most transactions recorded by the system are monetary transactions, where the units involved make or receive payments, or incur liabilities or receive assets denominated in units of currency.

Transactions that do not involve the exchange of cash, or assets or liabilities denominated in units of currency, are non-monetary transactions. Intra-unit transactions are normally non-monetary transactions. Non-monetary transactions involving more than one institutional unit occur among transactions in products (barter of products), distributive transactions (remuneration in kind, transfers in kind, etc.) and other transactions (barter of non-produced non-financial assets).

The system records all transactions in monetary terms. The values to be recorded for non-monetary transactions must therefore be measured indirectly or otherwise estimated.

1.37.

Transactions involving more than one unit are either ‘something for something’ or ‘something for nothing’ transactions. The former are exchanges between institutional units, i.e. provision of goods, services or assets in return for a counterpart, e.g. money. The latter typically are payments in cash or in kind from one institutional unit to another without counterpart. ‘Something for something’ transactions occur in all four transaction groups, while ‘something for nothing’ transactions occur mainly among distributive transactions, in the form of, for example, taxes, social assistance benefits or gifts.

1.38.

The system's treatment of most transactions is straightforward; that is, the transactions are recorded in the same way as they appear to the institutional units involved. However, some transactions are rearranged in order to bring out the underlying economic relationships more clearly. Transactions can be rearranged in three ways: rerouting, partitioning and recognizing the principal party to a transaction.

1.39.

A transaction that appears to the units involved as taking place directly between units A and C may be recorded as taking place indirectly through a third unit B. Thus, the single transaction between A and C is recorded as two transactions: one between A and B, and one between B and C. In this case the transaction is rerouted.

As well-known example of a rerouting is employers' social contributions paid directly by employers to social insurance funds. The system records these payments as two transactions: employers pay employer's social contributions to their employees, and employees pay the same contributions to social insurance funds. As with all reroutings, the purpose of rerouting employers' social contributions is to bring out the economic substance behind the transaction. In this case this means to show employer's social contributions as contributions paid for the benefit of employees.

Another type of rerouting is that of transactions recorded as taking place between two or more institutional units, although according to the parties involved no transaction takes place at all. An example is the treatment of property income earned on certain insurance funds, which is retained by insurance enterprises. The system records this property income as being paid by insurance enterprises to policy holders, who then pay the same amount back to the insurance enterprises as premium supplements.

1.40.

When a transaction appearing to the parties involved as a single transaction is recorded as two or more differently classified transactions, the transaction is partitioned. Partitioning does usually not imply involving additional units in the transactions.

The payment of non-life insurance premiums is a typical partitioned transaction. Although policy holders and insurers regard these payments as one transaction, the system divides them into two quite different transactions: payments in return for non-life insurance services provided, and net non-life insurance premiums. The recording of trade margins is another important case of partitioning.

1.41.

When a unit carries out a transaction on behalf of another unit, the transaction is recorded exclusively in the accounts of the principal. As a rule, one should not go beyond this principle and try, for instance, to allocate taxes or subsidies to ultimate payers or ultimate beneficiaries under the adoption of assumptions.

1.42.

The definition of a transaction stipulates that an interaction between institutional units be by mutual agreement. When a transaction is undertaken by mutual agreement, the prior knowledge and consent of the institutional units is implied. However, this does not mean that all units necessarily enter a transaction voluntarily, because some transactions are imposed by law. This applies mainly to certain distributive transactions, such as payments of taxes, fines and penalties. However, uncompensated seizure of assets is not regarded as a transaction, even when imposed by law.

Illegal economic actions are transactions only when all units involved enter the actions voluntarily. Thus, purchases, sales or barters of illegal drugs or stolen property are transactions, while theft is not.

1.43.

Other changes in assets record changes that are not the result of transactions ( 25 ). They are either:

1.44.

These changes can be roughly divided into three main categories:

1.45.

Examples of changes within category (a) are discovery or depletion of subsoil assets, and natural growth of non-cultivated biological resources. Category (b) comprises changes (normally losses) in assets due to natural disasters, war or severe acts of crime ( 26 ). Unilateral cancellation of debt and uncompensated seizure of assets also belong to category (b). Category (c) consists of changes as a consequence of reclassification and restructuring of institutional units or of assets and liabilities.

1.46.

Holding gains and losses result from changes in the prices of assets. They occur on all kinds of financial and non-financial assets, and on liabilities. Holding gains and losses accrue to the owners of assets and liabilities purely as a result of holding the assets or liabilities over time, without transforming them in any way.

Holding gains and losses measured on the basis of current market prices are called nominal holding gains and losses. These may be decomposed into neutral holding gains and losses, reflecting changes in the general price level, and real holding gains and losses, reflecting changes in the relative prices of assets.

1.47.

Stocks are holdings of assets and liabilities at a point in time. Stocks are recorded at the beginning and end of each accounting period. The accounts that show stocks are called balance sheets ( 27 ).

Stocks are also recorded for population and employment. However, these stocks are recorded as mean values over the accounting period.

Stocks are recorded for all assets within the system's boundaries; that is, for financial assets and liabilities and for non-financial assets, both produced and non-produced. However, the coverage is limited to those assets that are used in economic activity and that are subject to ownership rights. Thus, stocks are not recorded for assets such as human capital and natural resources that are not owned.

Within its boundaries, the system is exhaustive in respect of both flows and stocks. This implies that all changes in stocks can be fully explained by recorded flows.

1.48.

An account is a means of recording, for a given aspect of economic life, the uses and resources or the changes in assets and the changes in liabilities during the accounting period, or the stock of assets and liabilities existing at the beginning or at the end of this period.

1.49.

The system employs the term ‘resources’ for the right side of the current accounts where transactions appear which add to the amount of economic value of a unit or a sector. The left side of the accounts, which relates to transactions that reduce the amount of economic value of a unit or sector, is termed ‘uses’.

The right side of the accumulation accounts is called ‘changes in liabilities and net worth’ and their left side is called ‘changes in assets’.

Balance sheets are presented with ‘liabilities and net worth’ (the difference between assets and liabilities) on the right side and ‘assets’ on the left. Comparison of two successive balance sheets shows changes in liabilities and net worth and changes in assets.

1.50.

For a unit or sector, national accounting is based on the principle of double entry. Each transaction must be recorded twice, once as a resource (or a change in liabilities) and once as a use (or a change in assets). The total of transactions recorded as resources or changes in liabilities and the total of transactions recorded as uses or changes in assets must be equal, thus permitting a check on the consistency of the accounts.

In practice though, national accounts — with all units and all sectors — are based on a principle of quadruple entry, since most transactions involve two institutional units. Each transaction of this type must be recorded twice by the two transactors involved. For example, a social benefit in cash paid by a government unit to a household is recorded in the accounts of government as a use under transfers and a negative acquisition of assets under currency and deposits; in the accounts of the household sector it is recorded as a resource under transfers and an acquisition of assets under currency and deposits.

On the other hand, transactions within a single unit (such as the consumption of output by the same unit that produced it) require only two entries, whose values have to be estimated.

1.51.

With the exception of some variables concerning population and labour, the system shows all flows and stocks in monetary terms. The system does not attempt to determine the utility of flows and stocks. Instead, flows and stocks are measured according to their exchange value, i.e. the value at which flows and stocks are in fact, or could be, exchanged for cash. Market prices are thus ESA's basic reference for valuation.

1.52.

In the case of monetary transactions and cash holdings and liabilities, the values required are directly available. In most other cases, the preferred method of valuation is by reference to market prices for analogous goods, services or assets. This method is used for e.g. barter and the services of owner-occupied dwellings. When no market prices for analogous products are available, for instance in the case of non-market services produced by government, valuation should be made according to production costs. If neither of these two methods are feasible, flows and stocks may be valued at the discounted present value of expected future returns. However, due to the great uncertainty involved, this last method is only recommended as a last resort.

1.53.

Stocks should be valued at current prices at the time to which the balance sheet relates, not at the time of production or acquisition of the goods or assets that form the stocks. It is sometimes necessary to value stocks at their estimated written-down current acquisition values or production costs.

1.54.

Because of transport costs, trade margins and taxes less subsidies on products, the producer and the user of a given product usually perceive its value differently. In order to keep as close as possible to the views of the transactors, the system records all uses at purchaser's prices, which include transport costs, trade margins and taxes less subsidies on products, while output is recorded at basic prices, which exclude these elements.

1.55.

Imports and exports of products are recorded at border values. Total imports and exports are valued at the exporter's customs frontier, or free on board (fob). Foreign transport and insurance services between the importer's and the exporter's frontiers are not included in the value of goods but are recorded under services. As it may not be possible to obtain fob values for detailed product breakdowns, the tables containing details on foreign trade show imports valued at the importer's customs frontier (cif value). All transport and insurance services to the importer's frontier are included in the value of imported goods. As far as these services concern domestic services a global fob/cif adjustment is made in this presentation.

1.56.

Valuation at constant prices means valuing the flows and stocks in an accounting period at the prices of a previous period. The purpose of valuation at constant prices is to decompose changes over time in the values of flows and stocks into changes in price and changes in volume. Flows and stocks at constant prices are said to be in volume terms.

Many flows and stocks, e.g. income, do not have price and quantity dimensions of their own. However, the purchasing power of these variables can be obtained by deflating the current values with a suitable price index, e.g. the price index for final national uses, excluding changes in inventories. Deflated flows and stocks are said to be in real terms. An example is real disposable income.

1.57.

The system records flows on an accrual basis; that is, when economic value is created, transformed or extinguished, or when claims and obligations arise, are transformed or are cancelled.

Thus, output is recorded when produced, not when paid for by a purchaser, and the sale of an asset is recorded when the asset changes hands, not when the corresponding payment is made. Interest is recorded in the accounting period when it accrues, regardless of whether or not it is actually paid in that period. Recording on an accrual basis applies to all flows, monetary as well as non-monetary and intra-unit a well as between units.

However, in some cases it is necessary to show flexibility as regards time of recording. This applies in particular to taxes and other flows concerning general government, which are often recorded on a cash basis in government accounts. It is sometimes difficult to carry out an exact transformation of these flows from cash basis to accrual basis. In these cases it might therefore be necessary to use approximations. ►M4  Additional to this flexibility as regards time of recording, it was necessary for practical reasons linked to the excessive deficit procedure to define a particular recording of taxes and social contributions payable to the government sector, so that net lending/borrowing of general government (and of counterpart sectors) shall not include amounts of taxes and social contributions unlikely to be collected. By derogation to the general principle of recording transactions, taxes and social contributions payable to the general government can either be recorded net of the part unlikely to be collected or, if this part is included, it should be neutralised in the same accounting period by a capital transfer from the general government to the relevant sectors. ◄

Any flow should be recorded at the same point of time for all institutional units involved and in all accounts in question. This principle may seem simple, but its implementation is not. Institutional units do not always apply the same accounting rules. Even when they do, differences in actual recording may occur for practical reasons such as delays in communication. Consequently, transactions may be recorded at different times by the transactors involved. These discrepancies must be eliminated by adjustments.

1.58.

Consolidation refers to the elimination, from both uses and resources, of transactions which occur between units when the latter are grouped, and to the elimination of reciprocal financial assets and liabilities.

For subsectors or sectors, flows and stocks between constituent units are not consolidated between constituent units as a matter of principle.

However, consolidated accounts may be built up for complementary presentations and analyses. For certain kinds of analysis, information on the transactions of these (sub)sectors with other sectors and the corresponding ‘external’ financial position is more significant than overall gross figures.

Moreover, the accounts and tables showing the creditor/debitor relationship provide a detailed picture of financing of the economy and are considered very useful for understanding the channels through which the financing surpluses move from final lenders to final borrowers.

1.59.

Individual units or sectors may have the same kind of transaction both as a use and as a resource (e.g. they both pay and receive interest) and the same kind of financial instrument both as an asset and as a liability.

The system recommends gross recording, apart from the degree of netting which is inherent in the classifications themselves.

In fact, netting is implicit in various transaction categories, the most outstanding example being ‘changes in inventories’, which underlines the analytically significant aspect of overall capital formation rather than tracking daily additions and withdrawals.

Similarly, with few exceptions, the financial account and other changes in assets accounts record increases in assets and in liabilities on a net basis, bringing out the final consequences of these types of flows at the end of the accounting period.

1.60.

For units (institutional units; local kind-of-activity units) or groups of units (institutional sectors and, by extension, the rest of the world; industries), different sub-accounts record the transactions or other flows which are connected to some specific aspect of economic life (for instance, production). Such a set of transactions usually does not balance; the total amounts recorded as receivable and payable usually differ. Therefore, a balancing item must be introduced. Usually, a balancing item must also be introduced between the total of assets and the total of liabilities of an institutional unit or sector. Balancing items are meaningful measures of economic performance in themselves. When summed for the whole economy, they constitute significant aggregates.

1.61.

The system is built around a sequence of inter-connected accounts.

The full sequence of accounts for the institutional units and sectors is composed of current accounts, accumulation accounts and balance sheets.

Current accounts deal with the production, generation, distribution and redistribution of income and the use of this income in the form of final consumption. Accumulation accounts cover changes in assets and liabilities and changes in net worth (the difference for any institutional unit or group of units between its assets and liabilities). Balance sheets present stocks of assets and liabilities and net worth.

1.62.

It is not possible to envisage a complete set of accounts, including balance sheets, being compiled for a local KAU, because generally such an entity is not capable of owning goods or assets in its own right or capable of receiving or disbursing income. The sequence of accounts for local kind-of-activity units and industries is shortened to the first current accounts: production account and generation of income account, the balancing item of which is the operating surplus.

1.63.

The goods and services account shows, for the economy as a whole or for groups of products, the total resources (output and imports) and uses of goods and services (intermediate consumption, final consumption, changes in inventories, gross fixed capital formation, acquisitions less disposals of valuables, and exports).

1.64.

The Rest of the World account covers transactions between resident and non-resident institutional units and the related stocks of assets and liabilities when relevant.

As the rest of the world plays a role in the accounting structure similar to that of an institutional sector, the Rest of the World account is established from the point of view of the rest of the world. A resource for the rest of the world is a use for the total economy and vice versa. If a balancing item is positive, it means a surplus of the rest of the world and a deficit of the total economy, and vice versa if the balancing item is negative.

1.65.

A balancing item is an accounting construct obtained by subtracting the total value of the entries on one side of an account from the total value on the other side. It cannot be measured independently of the other entries; as a derived entry, it reflects the application of the general accounting rules to the specific entries on the two sides of the account.

Balancing items are not only devices introduced to ensure that accounts balance. They encapsulate a great deal of information and include some of the most important entries in the accounts, as can be seen from the following examples of balancing items: value added, operating surplus, disposable income, saving, net lending/net borrowing.

1.66.

The aggregates are composite values which measure the result of the activity of the total economy considered from a particular point of view; for example, output, value added, disposable income, final consumption, saving, capital formation, etc. Although the calculation of the aggregates is neither its sole nor its main purpose, the system does recognize their importance as summary indicators and key magnitudes for purposes of macro-economic analysis and comparisons over time and space.

Two types of aggregates can be distinguished:

1.67.

A dimension is added to the usefulness of a number of national accounts figures by calculating these figures per head. For broad aggregates such as GDP or national income or household final consumption, the denominator commonly used is the total (resident) population. When subsectoring the accounts or part of the accounts of the household sector, data on the number of households and the number of persons belonging to each subsector are also necessary ( 31 ).

1.68.

The input-output framework consists of supply and use tables by industry, tables linking the supply and use tables to the sector accounts and symmetric input-output tables by homogeneous branch (product).

1.69.

Supply and use tables are matrices (rows of products, columns of industries), showing how the output of industries is broken down by type of products and how the domestic and imported supply of goods and services is allocated between various intermediate or final uses, including exports. The use table also shows by industry the structure of production costs and the income generated.

The supply and use tables are the coordinating framework for all tables by industry and (or) by product, which include data on labour inputs, gross fixed capital formation, stocks of fixed assets, detailed price indices and thus describe in detail cost structure, income generated, employment, labour productivity, capital intensity.

1.70.

It is possible to link the supply and use tables to the sector accounts by cross-classifying output, intermediate consumption and the components of value added by sector and by industry.

2.01.

The economy of a country is the outcome of the activity of a very large number of units which carry out numerous transactions of various kinds for purposes of production, finance, insurance, redistribution and consumption.

2.02.

The units and groupings of units used in national accounts must be defined with reference to the kind of economic analysis for which they are intended, and not in terms of the types of unit usually employed in statistical inquiries. These latter units (enterprises, holding companies, kind-of-activity units, local units, government departments, non-profit institutions, households, etc.) may not always be satisfactory for the purposes of national accounts, since they are generally based on traditional criteria of a legal, administrative or accounting nature.

Statisticians should take into account the definitions of units of analysis used in the ESA, in order to ensure that in the surveys in which actual data are collected all the elements of information needed to compile data based on the units of analysis used in the ESA are gradually introduced.

2.03.

A feature of the system is the use of three types of unit corresponding to two very different ways of subdividing the economy. To analyse the process of production, it is essential to select units which bring out relationships of a technico-economic nature; to analyse flows affecting income, capital and financial transactions and balance sheets, it is essential to select units which make it possible to study behavioural relationships among economic agents.

Given these two objectives, institutional units appropriate for the analysis of economic behaviour, local kind-of-activity units and units of homogeneous production appropriate for the analysis of technico-economic relationships are defined later in this chapter. In practice, these three types of unit are formed by combining or subdividing the basic units of statistical inquiries or sometimes received directly from statistical inquiries. Before giving precise definitions of these three types of unit used in the ESA, it is necessary to define the limits of the national economy.

2.04.

The units, whether institutional, local kind-of-activity or of homogeneous production, which constitute the economy of a country and whose transactions are recorded in the ESA, are those which have a centre of economic interest on the economic territory of that country. These units, known as resident units, may or may not have the nationality of that country, may or may not be legal entities, and may or may not be present on the economic territory of the country at the time they carry out a transaction. Having thus defined the limits of the national economy in terms of resident units, it is necessary to define the meaning of the terms economic territory and centre of economic interest.

2.05.

The term economic territory means:

2.06.

The economic territory does not include extraterritorial enclaves (i.e. the parts of the country's own geographic territory used by general government agencies of other countries, by the institutions of the European Union or by international organizations under international treaties or agreements between States ( 34 )).

2.07.

The term centre of economic interest indicates the fact there exists some location within the economic territory on, or from, which a unit engages, and intends to continue to engage, in economic activities and transactions on a significant scale, either indefinitely or over a finite but long period of time (a year or more). It follows that a unit which carries out such transactions on the economic territory of several countries is deemed to have a centre of economic interest in each of them. The ownership of land and buildings within the economic territory is deemed to be sufficient in itself for the owner to have a centre of economic interest there.

2.08.

On the basis of these definitions, units deemed to be residents of a country can be sub-divided into:

2.09.

In the case of units which are principally engaged in production, finance, insurance or redistribution, in respect of all their transactions except those relating to ownership of land and buildings, the following two cases may be distinguished:

2.10.

In the case of units which are principally engaged in consumption, except in their capacity as owners of land and buildings, households which have a centre of economic interest in the country are deemed to be resident units, even if they go abroad for short periods (less than a year). They include, in particular, the following:

2.11.

All units in their capacity as owners of land and/or buildings which form part of the economic territory are deemed to be resident units or notional resident units (see paragraph 2.15.) of the country in which the land or buildings in question are located.

2.12.

In order to be said to have autonomy of decision in respect of its principal function, a unit must:

In order to be said to keep a complete set of accounts, a unit must keep accounting records covering all its economic and financial transactions carried out during the accounting period, as well as a balance sheet of assets and liabilities.

2.13.

The following principles apply whenever entities do not clearly possess both the characteristics of an institutional unit:

2.14.

Holding corporations are institutional units whose main function is to control and direct a group of subsidiaries.

2.15.

Notional resident units are defined as:

Notional resident units, even if they keep only partial accounts and may not always enjoy autonomy of decision, are treated as institutional units.

2.16.

In conclusion, the following are deemed to be institutional units:

2.17.

The need for aggregation means that it is impossible to consider individual institutional units separately; they must be combined into groups called institutional sectors or simply sectors, some of which are divided into subsectors.

2.18.

Each of the sectors and subsectors groups together the institutional units which have a similar type of economic behaviour.

The institutional units are grouped into sectors on the basis of the type of producer they are and depending on their principal activity and function, which are considered to be indicative of their economic behaviour.

A sector is divided into subsectors according to the criteria relevant to that sector; this permits a more precise description of the economic behaviour of the units.

The accounts for sectors and subsectors record all the activities, whether principal or secondary, of the institutional units covered.

Each institutional unit belongs to only one sector or subsector.

2.19.

When the principal function of the institutional unit is to produce goods and services, it is necessary in deciding the sector to which it should be allocated — to distinguish first of all the type of producer it is belonging to.

Three types of producers are distinguished in the ESA:

Institutional units which are market producers are classified in the sectors non-financial corporations (S.11), financial corporations (S.12) or households (S.14).

Institutional units which are private producers for own final use are classified in the households sector (S.14) together with the unincorporated enterprises owned by households (see paragraph 3.30).

Institutional units which are other non-market producers are classified in the sector general government (S.13) or non-profit institutions serving households (S.15).

2.20.

Table 2.2 shows the type of producer, the principal activities and functions which are characteristic of each sector:

The rest of the world (S.2) is a grouping of institutional units (see paragraph 2.89) which is not characterized by similar objectives and types of behaviour; it groups together non-resident institutional units insofar as they carry out transactions with resident institutional units.

2.21.

Definition : The sector non-financial corporations (S.11) consists of institutional units whose distributive and financial transactions are distinct from those of their owners and which are market producers (see paragraphs 3.31, 3.32 and 3.37), whose principal activity is the production of goods and non-financial services ( 38 )

2.22.

The sector non-financial corporations also includes non-financial quasi-corporations.

2.23.

The term ‘non-financial corporations’ denotes all bodies recognized as independent legal entities which are market producers and whose principal activity is the production of goods and non-financial services.

The institutional units covered are the following:

2.24.

The term ‘non-financial quasi-corporations’ denotes all bodies without independent legal status which are market producers principally engaged in the production of goods and non-financial services and meet the conditions qualifying them as quasi-corporations (see paragraph 2.13. f).

Quasi-corporations must keep a complete set of accounts and are operated as if they were corporations. The de facto relationship to their owner is that of a corporation to their shareholders.

Thus non-financial quasi-corporations owned by households, government units or non-profit institutions are grouped with non-financial corporations in the non-financial corporations sector.

The existence of a complete set of accounts, including balance sheets, is not a sufficient condition for market producers to be treated as quasi-corporations. Therefore, partnerships and public producers, other than those included under 2.23. a, b, c and f and sole proprietorships — even if they keep a complete set of accounts — are in general not distinct institutional units because they do not enjoy autonomy of decision, their management being under the control of the households, non-profit institutions or governments which own them.

2.25.

The sector non-financial corporations also includes all notional resident units (see paragraph 2.15) which, by convention, are treated as if they were quasi-corporations.

2.26.

Control over a corporation is defined as the ability to determine general corporate policy by choosing appropriate directors, if necessary.

A single institutional unit (another corporation, a household or a government unit) secures control over a corporation by owning more than half the voting shares or otherwise controlling more than half the shareholders' voting power.

In addition, government secures control over a corporation as a result of special legislation decree or regulation which empowers the government to determine corporate policy or to appoint the directors.

In order to control more than half the shareholders' voting power, an institutional unit need not own any of the voting shares itself. A corporation C could be a subsidiary of another corporation B in which a third corporation A owns a majority of the voting shares.

Corporation C is said to be subsidiary of corporation B when: either corporation B controls more than half of the shareholders' voting power in corporation C or corporation B is a shareholder in C with the right to appoint or remove a majority of the directors of C.

2.27.

The sector non-financial corporations is divided into three subsectors:

2.28.

2.29.

Public quasi-corporations are quasi-corporations owned directly by government units.

2.30.

This subsector includes corporate and quasi-corporate direct foreign investment enterprises (see paragraph 4.65) not classified in the subsector foreign controlled non-financial corporations (S.11003).

2.31.

This subsector includes:

2.32.

2.33.

Through the financial intermediation process, funds are channelled between third parties with a surplus on one side and those with a lack of funds on the other. A financial intermediary does not simply act as an agent for these other institutional units but places itself at risk by acquiring financial assets and incurring liabilities on its own account.

2.34.

In the financial intermediation process, all categories of liabilities may be involved with the exception of the category other accounts payable (AF.7).

The financial assets involved in the financial intermediation process may be classified in any category with the exception of the category insurance technical reserves (AF.6) but including the category other accounts receivable (factoring). In addition, financial intermediaries may invest their funds in non-financial assets including real estate. However, in order to be considered as a financial intermediary, a corporation should, in addition, incur liabilities on the market and transform funds. Therefore, real estate corporations ( ►M11  NACE Rev. 2 ◄ ►M11  division 68 ◄ ) are excluded.

2.35.

The primary function of insurance corporations and pension funds consists of the pooling of risks. The main liabilities of these institutions are insurance technical reserves (AF.6). The counterparts of the reserves are investments by the insurance corporations and pension funds, which, therefore, act as financial intermediaries.

2.36.

Mutual funds primarily incur liabilities through the issue of shares (AF.52). They transform these funds by acquiring financial assets and/or real estate. Therefore, mutual funds are classified as financial intermediaries. As with other corporations, any change in the value of their assets and liabilities other than their own shares is reflected in their own funds (see paragraph 7.05). Because the amount of own funds normally equals the value of the mutual fund's shares, any change in the value of the fund's assets and liabilities will be reflected in the market value of these shares.

Mutual funds investing solely in real estate are also regarded as financial intermediaries.

2.37.

Financial intermediation, generally, is limited to financial transactions on the market. In other words, acquiring assets and incurring liabilities should be with the general public or specified and relatively large sub-groups thereof. Where the activity is limited to small groups of persons or families, generally, no financial intermediation takes place. In particular, financial intermediation does not include institutional units providing treasury services to a company group. These institutional units are allocated to a sector according to the predominant function of the company group within the economic territory. However, in cases where the institutional unit providing the treasury services is subject to financial supervision, it is classified in the financial corporations sector by convention.

2.38.

Exceptions to the general limitation of financial intermediation to financial transactions on the market may exist. Examples are municipal credit and savings-banks, which rely heavily on the municipality involved, or financial lease corporations depending on a parent group of companies in acquiring funds or in investing funds. However, their lending or their acceptance of savings should be independent of the municipality involved or the parent group, respectively, in classifying them as financial intermediaries.

2.39.

Auxiliary financial activities comprise auxiliary activities for realizing transactions in financial assets and liabilities or the transformation or repackaging of funds. Financial auxiliaries do not set themselves at risk by acquiring financial assets or incurring liabilities. They only facilitate financial intermediation.

2.40.

The institutional units included in the sector financial corporations (S.12) are the following:

2.41.

The financial corporations sector is subdivided into five subsectors:

The other monetary financial institutions subsector is regarded as equivalent to the other depository corporations subsector as defined in the 1993 SNA 4.88—4.94. While the definition of the other monetary financial institutions subsector (see paragraph 2.48) is intended to cover those financial intermediaries through which the effects of the monetary policy of the central bank are transmitted to the other entities of the economy, the other depository corporations subsector is defined in the 1993 SNA with reference to measures of broad money. The combined subsectors S.121 and S.122 coincide with the monetary financial institutions for statistical purposes as defined by the EMI (see paragraph 2.49).

2.42.

With the exception of subsector S.121, each subsector may be further subdivided into:

The criteria for this subdivision are the same as for non-financial corporations (see paragraphs 2.26 to 2.31).

2.43.

Holding corporations which only control and direct a group of subsidiaries principally engaged in financial intermediation and/or in auxiliary financial activities are classified in the subsector other financial intermediaries except insurance corporations and pension funds (S.123) ( 41 ). However, holding corporations which are financial corporations themselves are to be allocated to the subsectors according to the main type of financial activity.

2.44.

Non-profit institutions recognized as independent legal entities serving financial corporations, but not engaged in financial intermediation or auxiliary financial activities, are classified in the subsector financial auxiliaries (S.124).

2.45.

2.46.

The following financial intermediaries are classified in subsector S.121:

2.47.

Subsector S.121 does not include agencies and bodies, other than the central bank, which regulate or supervise financial corporations or financial markets. They are classified in subsector S.124 (see paragraph 2.58 (g) ( 42 ).

2.48.

2.49.

The monetary financial institutions (MFIs) comprise the subsector the central bank (S.121) and the subsector other monetary financial institutions (S.122), and coincide with the monetary financial institutions for statistical purposes as defined by the EMI (see paragraph 2.41).

2.50.

MFIs cannot be described simply as ‘banks’, because they may possibly include some financial corporations which may not call themselves banks, and some which may not be permitted to do so in some countries, while some other financial corporations describing themselves as banks may not in fact be MFIs. In general, the following financial intermediaries are classified in subsector S.122:

2.51.

The following financial intermediaries may also be classified in subsector S.122 where it is their business to receive repayable funds from the public whether in the form of deposits or in other forms such as the continuing issue of bonds and other comparable securities. Otherwise, they should be classified in subsector S.123:

2.52.

Subsector S.122 does not include:

2.53.

2.54.

Subsector S.123 includes various types of financial intermediaries especially those which are predominantly engaged in long-term financing. In most cases this predominant maturity forms the basis of a distinction from the other monetary financial institutions subsector. Based on the non-existence of liabilities in the form of insurance technical reserves, the borderline with the insurance corporations and pension funds subsector can be determined.

2.55.

In particular, the following financial corporations and quasi-corporations are classified in subsector S.123 unless they are MFIs:

2.56.

Subsector S.123 does not include non-profit institutions recognized as independent legal entities serving other financial intermediaries except insurance corporations and pension funds, but not engaged in financial intermediation. They are classified in subsector S.124 (see paragraph 2.44).

2.57.

2.58.

In particular, the following financial corporations and quasi-corporations are classified in subsector S.124:

2.59.

Subsector S.124 does not include holding corporations which only control and direct a group of subsidiaries principally engaged in auxiliary financial activities, but which are not financial auxiliaries themselves. They are classified in subsector S.123 (see paragraph 2.43).

2.60.

2.61.

The insurance contracts administered might relate to individuals and/or groups, whether or not participation results from a general obligation imposed by government. Furthermore, social insurance contracts (see paragraphs 4.83 to 4.91) are sometimes a considerable part of the contracts administered.

2.62.

Subsector S.125 includes both captive insurance corporations and reinsurance corporations.

2.63.

Subsector S.125 does not include:

2.64.

The subsector insurance corporations and pension funds may be subdivided into:

Autonomous pension funds are pension funds which have autonomy of decision and keep a complete set of accounts. They are therefore institutional units. Non-autonomous pension funds are not institutional units and remain part of the institutional unit that sets them up.

2.65.

Risks concerning individuals or groups could both be included in the activities of life and non-life insurance corporations. Some insurance corporations might limit their activities to group contracts only. These corporations are allowed to insure every group.

2.66.

Pension funds can be described as institutions which insure group risks relating to social risks and needs (see paragraph 4.84) of the insured persons. The typical groups of participants in such policies include employees of a single enterprise or a group of enterprises, employees of a branch or industry, and persons having the same profession. The benefits included in the insurance contract might encompass benefits which are paid after death of the insured to the widow(er) and children (mainly death in service), benefits which are paid after retirement and benefits which are paid after the insured became disabled.

2.67.

In some countries all these types of risks could be insured equally well by life insurance corporations as by pension funds. In other countries some of these classes of risks have to be insured through life insurance corporations. In contrast to life insurance corporations, pension funds are restricted (by law) to specified groups of employees and self-employed.

2.68.

2.69.

The institutional units included in sector S.13 are the following:

2.70.

The general government sector is divided into four subsectors:

2.71.

Included in subsector S.1311 are those non-profit institutions which are controlled and mainly financed by central government and whose competence extends over the whole economic territory.

2.72.

Included in subsector S.1312 are those non-profit institutions which are controlled and mainly financed by state governments and whose competence is restricted to the economic territories of the States.

2.73.

Included in subsector S.1313 are those non-profit institutions which are controlled and mainly financed by local governments and whose competence is restricted to the economic territories of the local governments.

2.74.

There is usually no direct link between the amount of the contribution paid by an individual and the risk to which that individual is exposed.

2.75.

2.76.

The households sector includes:

2.77.

The households sector is subdivided into six subsectors:

2.78.

Households are allocated to subsectors according to the largest income category (employers' income, compensation of employees, etc.) of the household as a whole. When more than one income of a given category is received within the same household, the classification must be based on the total household income within each category.

2.79.

2.80.

2.81.

2.82.

Pension households are households whose largest income consists of retirement or other pensions, including pensions from previous employers.

2.83.

Other current transfers are all current transfers other than property income, pensions and income of persons living permanently in institutions.

2.84.

Persons living permanently in institutions are classified separately because the criterion of the largest source of income does not allow a meaningful classification of these persons in one of the foregoing subsectors.

2.85.

If the main income source of the household as a whole is not available for sectoring purposes, the income of the reference person constitutes the second-best characteristic to be used for classifying purposes. The reference person of a household is normally the person with the largest income. If the latter information is not available, the income of the person who states the he/she is the reference person may be used for subsectoring households.

2.86.

However, other criteria may be appropriate and needed for different kinds of analysis or as the basis for policy-making, e.g. breakdown of households as entrepreneurs by activity: agricultural households; non-agricultural households (industry; services).

2.87.

Definition : The sector non-profit institutions serving households (NPISHs) (S.15) consists of non-profit institutions which are separate legal entities, which serve households and which are private other non-market producers (see paragraph 3.32). Their principal resources, apart from those derived from occasional sales, are derived from voluntary contributions in cash or in kind from households in their capacity as consumers, from payments made by general governments ( 44 ) and from property income.

2.88.

Where these institutions are not very important, they are not included in this sector, their transactions being mixed up with those of households (S.14).

The NPISHs sector includes the following main kinds of NPISHs that provide non-market goods and services to households:

Sector S.15 includes charities, relief or aid agencies serving non-resident units and excludes entities where membership gives right to a predetermined set of goods and services.

2.89.

Definition : The rest of the world (S.2) is a grouping of units without any characteristic functions and resources; it consists of non-resident units ( 45 ) insofar as they are engaged in transactions with resident institutional units, or have other economic links with resident units. Its accounts provide an overall view of the economic relationships linking the national economy with the rest of the world.

2.90.

The rest of the world is not a sector for which complete sets of accounts have to be kept, although it is often convenient to describe the rest of the world as if it were a sector. Sectors are obtained by disaggregating the total economy to obtain more homogeneous groups of resident institutional units, which are similar in respect to their economic behaviour, their objectives and functions. This is not the case for the sector rest of the world: there are recorded the transactions and other flows of non-financial and financial corporations, non-profit institutions, households and general government with non-resident institutional units and other economic relationships between residents and non-residents, e.g. claims by residents on non-residents.

2.91.

It should be noted that the rule whereby the accounts for the rest of the world include only transactions carried out between resident institutional units and non-resident units is subject to the following exceptions:

2.92.

The sector rest of the world (S.2) is subdivided into:

2.93.

The following overview and paragraphs 2.94 to 2.101 summarize the principles underlying the classification of producer units into sectors, using the standard terminology for describing the main types of institutions.

2.94.

Private and public corporations which are market producers are classified as follows:

2.95.

Cooperatives and partnerships recognized as independent legal entities and which are market producers are classified as follows:

2.96.

Public producers which by virtue of special legislation are recognized as independent legal entities and which are market producers are classified as follows:

2.97.

Public producers not recognized as independent legal entities and which are market producers are classified as follows:

2.98.

Non-profit institutions (associations, foundations) recognized as independent legal entities are classified as follows:

2.99.

Sole proprietorships and partnerships not recognized as independent legal entities and which are market producers are classified as follows:

2.100.

Holding corporations (i.e. corporations which direct a group of companies) are classified as follows:

2.101.

Table 2.3 illustrates in schematic form the various cases which are enumerated above.

2.102.

In practice, most institutional units producing goods and services are engaged in a combination of activities at the same time. They may be engaged in a principal activity, some secondary activites and some ancillary activities (see paragraphs 3.10 to 3.13).

2.103.

An activity can be said to take place when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterized by an input of products (goods and services), a production process and an output of products.

Activities can be determined by reference to a specific level of ►M11  NACE Rev. 2 ◄  ( 46 ).

2.104.

If a unit carries out more than one activity, all the activites which are not ancillary activities are ranked according to the gross value added. On the basis of the preponderant gross value added generated, a distinction can then be made between principal activity and secondary activities. Ancillary activities are not isolated to form distinct entities or separated from the principal or secondary activities of entities they serve.

2.105.

In order to analyse flows occurring in the process of production and in the use of goods and services, it is necessary to choose units which emphasize relationships of a technico-economic kind. This requirement means that as a rule institutional units must be partitioned into smaller and more homogeneous units with regard to the kind of production. Local kind-of-activity units are intended to meet this requirement as a first but practice-oriented operational approach.

2.106.

Definition : The local kind-of-activity unit (local KAU) is the part of a KAU which corresponds to a local unit ( 47 ). The KAU groups all the parts of an institutional unit in its capacity as producer contributing to the performance of an activity at class level (four digits) of the ►M11  NACE Rev. 2 ◄ and corresponds to one or more operational subdivisions of the institutional unit. The institutional unit's information system must be capable of indicating or calculating for each local KAU at least the value of production, intermediate consumption, compensation of employees, the operating surplus and employment and gross fixed capital formation

The local unit is an institutional unit producing goods and services or a part thereof situated in a geographically identified place.

A local KAU may correspond to an institutional unit as producer or a part thereof; on the other hand, it can never belong to two different institutional units.

2.107.

If an institutional unit producing goods and services contains a principal activity and also one or several secondary activities, it should be subdivided into the same number of KAUs, and the secondary activities should be classified under different headings from the principal activity. On the other hand, the ancillary activities are not separated from the principal or secondary activities. But KAUs falling within a particular heading of the classification system can produce products outside the homogeneous group on account of secondary activities connected with them which cannot be separately identified from available accounting documents. Thus a KAU may carry out one or more secondary activities.

2.108.

Industries comprise both local KAUs producing market goods and services and local KAUs producing non-market goods and services. An industry by definition consists of a group of local KAUs engaged in the same type of productive activity, irrespective of whether or not the institutional units to which they belong produce market or non-market output.