19.1. The central framework of the SNA pursues at least two objectives. First, it tries to help the development of a country’s own system of national accounts by providing guidance to the national accountants of that country so that they are spared the trouble of searching and experimenting with approaches already tried by others. Secondly, it aims at facilitating international comparability between the national accounts of various countries in order to facilitate economic and social analysis in the worldwide economy. As such it is a set of integrated international standards.

A. Introduction

  • 19.1. The central framework of the SNA pursues at least two objectives. First, it tries to help the development of a country’s own system of national accounts by providing guidance to the national accountants of that country so that they are spared the trouble of searching and experimenting with approaches already tried by others. Secondly, it aims at facilitating international comparability between the national accounts of various countries in order to facilitate economic and social analysis in the worldwide economy. As such it is a set of integrated international standards.

  • 19.2. These two objectives may appear to be in conflict in so far as many differences exist among countries with respect to their stage of development, economic and social structure, legal organization, economic and social policy, etc. The conflict may indeed exist to a certain extent, especially when looking at countries in very different situations. However, the premise is that the accounting structure is general enough to suit most cases. This does not mean, of course, that all countries’ distinctive features are reflected in the SNA standards; that would be impracticable. It does mean that such features may normally be accommodated within the margins of flexibility provided by the System, especially when designing classifications of transactions and transactors and determining the related definitions. Even the most detailed levels of the System’s classifications remain general in character and are not a priori relevant for any economy. Some items may not exist in some countries, like value added tax or import subsidies, and consequently they will not be retained in their national classifications. Alternatively, a country could find it useful to show more details at a given level of a classification or to introduce additional levels. The national accountants of any country are encouraged to do this, bearing in mind the objective of international comparability.

  • 19.3. The intent behind the SNA is that countries should find it possible to implement the integrated framework without conflict with their own requirements. Conversely, countries should find it possible to innovate when elaborating their own national accounts so that they do not depart from the main international standards.

  • 19.4. In general, in response to analytical requirements and data availability, the emphasis put on various aspects may vary within the context of the integrated System. This may be achieved by using the System’s classifications of institutional sectors, industries, products, transactions, accounts, etc. at various levels or including additional ones; by applying alternative methods of valuation; by giving different priorities for various parts of the accounts and different frequencies; by rearranging the results for publication; etc. The elements of complementary classifications of transactions and other flows were especially designed for additional presentations and analysis. It is also possible to re-order the institutional sub-sectors in order to give more importance to the criterion of control which, in the hierarchic classification, does not appear at the first or even second level. Moreover, one may introduce additional criteria which, while not being included in the basic classifications of the SNA, do not conflict with the logic of the System. For example, these additional criteria might be size of employment for enterprises, size of income for households or the distinction between rural and urban segments of the economy.

  • 19.5. The flexibility of the SNA such as just described deserves special emphasis because in the past the narrow perception had developed that the SNA was a limited set of accounts that did not display all the interconnections of the economy and lacked flexibility for application to different conditions in different countries. Solutions to these drawbacks had sometimes been sought through the building of social accounting matrices (SAMs), which displayed the interconnections, disaggregated the household sector, showed the link between income generation and consumption, etc. Further, sometimes the incorrect impression had been given that a SAM is an alternative to the SNA. A SAM is not an alternative to the SNA. A SAM is the SNA—in matrix terms and incorporating whatever degree of detail is of special interest. (For further explanation of the matrix presentation and SAMs, see chapter XX.) To date, builders of SAMs have exploited their flexibility to highlight special interests and concerns more than compilers of regular national accounts. The power of a SAM, as well as of the SNA, comes from choosing the appropriate type of disaggregation to study the topic of interest. It is an aim of the System to show the advantages of applying such flexibility as a regular part of compiling some or all aspects of the accounts, whether the presentation is a full set of accounts or an equivalent matrix.

  • 19.6. The purpose of this chapter is not to elaborate in detail how a country may design its system following the SNA, but to show how, by using it in a flexible way, a country may adapt the central framework to special circumstances or types of analysis. The chapter provides a number of examples of such adaptations. In order to avoid misunderstanding it must be clear that these adaptations are not outside the central framework, but rather they are ways and means of building up a central framework with specific features according to national circumstances and needs.

B. Detailed analysis of the household sector

  • 19.7. For in-depth analysis of economic and social conditions of the population, great importance has to be given to the analysis of the household sector. In the SNA as much importance is attached to the accounts of the household sector as to the accounts of other sectors. The household sector is a complex one. It covers first, the domestic transactions of households, i.e., transactions relating to the households’ role as final consumers. Secondly, it covers activities households carry out and transactions they realize in connection with production activities which are not organized on a corporate or quasi-corporate enterprise basis. For those households which are engaged in production activities, the household institutional unit realizes both kinds of transactions and holds assets and liabilities belonging to and incurred by the household in question. There is only one figure for this unit’s saving and one for its net worth. In effect there is no way of observing, after entrepreneurial income has been calculated, how this income is distributed partly to the household as consumer, and partly retained in the enterprise, because no such distribution actually takes place. Although some assets and liabilities may be identified as being of an enterprise type or a domestic type, others may not, but in any case it is the household as such which is the owner of all assets and is responsible for all liabilities.

  • 19.8. Most households include several individuals who differ not only in physical characteristics, like sex and age, but also as to whether they are employed or not, and if employed, in the kind of productive activities in which they engage. So the economic characteristics of a given household may be rather heterogeneous. However, the socio-economic status of a household is a useful way to characterize the household as a group of individuals because all its members live together and because they are linked by family or similar relationships and share many common features both from a social and economic point of view.

1. Sub-sectoring the household sector

  • 19.9. As the household sector as a whole is very heterogeneous economically and socially, it is necessary to separate more homogeneous groups within the sector. The System includes a classification of sub-sectors of households. Households are allocated to these sub-sectors according to their largest source of income (see chapter IV). Countries may want to introduce more detail or use a different method, such as the socio-economic characteristics of a reference person—who normally provides the main source of income, or more than one method of sub-sectoring. Various criteria might be used.

  • 19.10. For employers and own-account workers, the kind of economic activity in which they are engaged, such as agriculture, mining, manufacturing or construction, or services, is obviously meaningful. However, inside these broad categories, the type and size of the business and consequently income and wealth may differ considerably. Countries may therefore want to introduce additional criteria, which may vary from one activity to the other, relative to the size and type of the enterprise owned by a household. The size can generally be defined in terms of number of employees and family workers, except in agriculture and trade. In agriculture, the area, the number of cattle, etc., have to be taken into account; in trade, the amount of sales is more significant. The type of enterprise refers to the way it is organized and operated, taking into consideration the legal status or its absence, the existence of accounts or their absence, the stability of the activity or its absence, etc. A distinction commonly referred to is the one between formal and informal activities, which relies upon these kinds of criteria. Although a certain degree of informal activity may exist in developed countries, the distinction is particularly relevant for developing countries. In many of them it is crucial due to the number of people involved (street traders, shoe cleaners, etc.) who are generally own-account workers, but may be employers too. The distinction between formal and informal activities/enterprises is recommended in the System, when relevant. The distinction can be used for further sub-sectoring employers and own-account workers.

  • 19.11. For employees, various levels of skills may be distinguished. Other criteria, like the broad categories of activities or type of enterprise in which people work, may also be used.

  • 19.12. The rural/urban distinction may be essential in certain circumstances. The only feasible way to introduce it in the overall accounting structure is based on household survey data, adjusted in order to take account of production surveys and administrative data. Also, a distinction between ethnic groups may be relevant in certain countries.

  • 19.13. Table 19.1 summarizes these alternatives.

    Table 19.1.

    Sub-sectoring of households

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2. Applying the sequence of accounts to sub-sectors

  • 19.14. The full sequence of accounts is relevant for all sub-sectors. However, the production and generation of income accounts are important mainly for the employers’1 and own-account workers’ sub-sectors. In many cases, building up these accounts, even roughly, is the only way to get an approximation of the mixed income accruing to those households. Production and generation of income accounts in the case of the other sub-sectors cover services of owner-occupied dwellings, services produced by employing paid domestic staff, incidental production activities and other unincorporated enterprises that constitute only a secondary source of income.

  • 19.15. The accounting structure of the System is designed in order to describe the three main stages of income distribution and redistribution:

    • (a) Primary incomes (which in the case of the household sector cover operating surplus, mixed income, compensation of employees, net property income received);

    • (b) Disposable income, measured after allowing for current taxes on income, wealth, etc. and other current transfers, excluding social transfers in kind; and

    • (c) Adjusted disposable income, measured after allowing for social transfers in kind.

    The magnitudes of these three concepts of income may differ widely at the level of the overall household sector. The differences between them are even greater for some types of households, which means that in principle it is necessary to take all of them into account to give a correct picture of income redistribution. In addition, distinguishing the three concepts leads to the measurement of actual final consumption and saving. Actual final consumption gives the best approximation of the total of consumer goods and services actually acquired by the various groups of households, which is necessary for assessing their living standards. On the other hand, saving approximates the change in assets available for the future, at least when destruction of assets by natural catastrophes or political events and holding gains/losses due to inflation are not very important.

  • 19.16. Paragraph 19.15 above shows the importance of depicting the complete process of income redistribution, including a thorough study of transfers (see paragraph 19.25 below). Conversely, for purposes more closely linked to short-term analysis of purchasers’ behaviour, a concept of income relating to that part of income over whose use households can actually take decisions may be required. Such a concept might be called discretionary disposable income. It differs from disposable income by the amount of the in-kind components which are included in the latter. See chapter VIII, paragraphs 8.13 and 8.14, for a presentation of the components in kind included in disposable income.

  • 19.17. Income distribution is commonly studied according to size of income. Various statistical units are used in such studies—households, individuals or the tax cluster, depending on the data source and the kind of income in question. For analysing the distribution of compensation of employees or more narrowly wages and salaries, individuals are used because they are the wage earners. In this case the type of income and source of data lead to the same choice of statistical unit. For operating surplus and mixed income, the relevant statistical unit may be either the enterprise or the household, because in most circumstances more than one member of the household is working in this producing unit. For global concepts of income (primary, discretionary, disposable, adjusted disposable income), the household is the appropriate statistical unit. The tax cluster may have to be used if administrative data organized that way are the only sources of income data, especially the only regular ones. Household surveys may be designed in order to best approximate the concept of the household as the statistical unit but they have to be supplemented by other sources of data if the picture is to be complete. When using statistical units which do not relate to individuals, it is necessary to make calculations of income by head (or by a statistical standard like consumption units) in order to avoid misinterpretation.

  • 19.18. One could think of subdividing the household sector, in the context of national accounts, by income size and of trying to establish a full set of accounts for each income bracket. This might be thought of as an alternative to the breakdown by socio-economic groups or as a complementary subdivision inside each such group or sub-group. While this approach presents no conceptual difficulty (except in choosing the most relevant income concept), it is improbable that available data permit it in practice. However, the size of income criterion might be used for decomposing certain items, such as discretionary income or disposable income and at least some of their main components.

  • 19.19. Apart from the capital account, the other accumulation accounts and the balance sheets may be very difficult to establish for disaggregated kinds of households, due to data problems. Studying wealth inequalities is, however, an essential part of economic and social analysis. Various statistical tools may be used, mainly saving and wealth surveys, records on capital taxes, data on stocks of buildings and on financial assets and liabilities. Even in countries where their integration in a national account framework is a long-term objective, partial analysis, depending on various circumstances and needs, may be feasible and very useful for complementing figures from the current accounts and the capital account. For example, estimates of real holding gains and losses on monetary assets and liabilities are important for assessing the effects of inflation on households. In a country where floods, earthquakes or wars destroy an important part of household assets, even a rough estimate of such destruction is highly desirable.

3. Introducing complementary details in transactions and balancing items

  • 19.20. So far this section dealt with the disaggregation of the household sector in terms of the corresponding column in the integrated economic accounts, commenting on the sequence of accounts and the redistribution and accumulation process. We now look at the rows of those accounts, i.e., at the transactions and some balancing items. A number of features of the System’s classifications and relevant complements are introduced. They are examined in the order of the sequence of accounts and the classifications of transactions.

  • 19.21. Similar purposes may be pursued either by subdividing the column for the household sector or by distinguishing various components of certain transactions or balancing items in the rows. When the first approach is not feasible in practice, an approximation might be available by analysing only some important items, such as compensation of employees or mixed income, in the rows. For example, the rural/urban distinction mentioned in the previous section might be very useful for at least certain income concepts even if it cannot be implemented fully. Of course, combining both approaches would permit the richest analysis, when necessary data are available or valid approximations derivable.

  • 19.22. Output may distinguish between components which are sold, bartered or destined for own-account uses, such as own-account final consumption and own-account fixed capital formation, or added to inventories (the net variation of which may be positive or negative).

  • 19.23. Compensation of employees (and the corresponding figures on employment) lends itself to an analysis by kind of labour (for example, level of education, skill—based on a classification of occupations—and sex), industry of employment or location (as in the rural/urban distinction). Compensation of employees in cash and in kind may also be separated. As explained above, the distribution of compensation of employees or, if not feasible, wages and salaries by income brackets is an important element of economic and social analysis.

  • 19.24. Mixed income and entrepreneurial income may be broken down in various ways (in the case of households, operating surplus refers only to the services of owner-occupied dwellings). Here again, various criteria may be used. Industry of origin, formal or informal segments of the economy or location have been referred to previously. In addition, the distinction between modern and traditional activities used in production (which is not synonymous with the distinction between formal and informal activities2) or, as an approximation, between capital intensive and labour intensive activities, may be introduced. If the subsistence economy represents a significant share of a country’s economy, it is recommended that this should be separated from the other informal traditional activities.

  • 19.25. The analysis of transfers is an important part of the study of income redistribution. Data on transfers may come from household surveys and administrative records. The System’s multi-level classification may be complemented in various ways. For example, social benefits might be broken down according to the type of risk covered (unemployment, sickness, old age, etc.). Or, in a country where the responsibility for redistributing income is still found at the level of the family, transfers between resident households and remittances from members of the family living abroad might be isolated by subdividing the miscellaneous current transfers of the classification, while using the remaining part of the latter at a more aggregated level.

  • 19.26. Final consumption expenditure covers components already met above when considering output. Own-account consumption at least should be distinguished from other consumption elements. If barter transactions are important in a country or a region, they might also be isolated. Another possibility is to distinguish more systematically monetary components from in-kind elements. The latter will also include the counterparts of compensation of employees in kind and transfers in kind from the rest of the world and corporations, if any. Further, the various components of non-monetary consumption transactions may be identified.

  • 19.27. Transfers in kind by government or non-profit institutions serving households (NPISHs) have to be taken into account in order to go from consumption expenditure to actual consumption. They are of course non-monetary by definition.

  • 19.28. The need for separating monetary and non-monetary transactions leads to the isolation in the capital account of own-account capital formation.

  • 19.29. Table 19.2 presents the sequence of accounts for the household sector with the classification of transactions and balancing items complemented by additional subdivisions. A number of the subdivisions are elements of complementary classifications.

Table 19.2.

Integrated economic accounts for the household sector

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Indicates the first item of the breakdown in the full sequence of accounts for the household sector.

Indicates a possible alternative breakdown.

All balancing items can be measured gross or net of consumption of fixed capital. The code for gross balancing item is the code for the item plus the letter “g”. Similarily, the letter “n” attached to a code indicates net values.

“Changes in net worth due to saving and capital transfers” is not a balancing item in the structure of the System. It is the total of the right-hand side of the capital account. However, as a significant component of changes in net worth, it is coded with the other components of the latter.