Institutional units according to ESA 2010 Market and non-market output THE CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION

Overview Limits of the national economy Institutional units Institutional sectors Criteria for classification Market and non-market output

Limits of the national economy The national economy is defined in terms of resident units. Resident units are known as resident units, irrespective of nationality, legal form or presence on the economic territory at the time they carry out a transaction. An institutional unit is resident in a country when it has its centre of predominant economic interest in the economic territory of that country, over a sufficiently long period (one year of more)

Limits of national economy A country’s economic territory, ESA (2.05) The area within the ‘governed’ borders Incl. own embassies, military settlements abroad Excl. foreign embassies, military settlements and EU Excl. extraterritorial enclaves.

Limits of national economy Residency - special cases Cross border workers (excluded); Cross border seasonal workers (excluded); Tourists (excluded); Branch office (included); Real estate – land and buildings - owned by non-resident (included).

Institutional units ESA 2010: Units and sectors Institutional unit: - smallest centre of economic decision making Institutional units are allocated to institutional sectors Institutional sectors: – Non-financial corporations S.11 – Financial corporations S.12 – General government S.13 – Households S.14 – Non-profit institutions serving households S.15 – Rest of the world S.2

Institutional units Non-financial corporations S.11 Non-financial corporations consist of institutional units which are independent legal entities and market producers, and whose principal activity is the production of goods and non-financial services (including quasi-corporations).

Institutional units Financial corporations S.12 Financial corporations consist of institutional units which are independent legal entities and market producers, and whose principal activity is the production of financial services (including quasi-corporations). (a) central bank (S.121); (b) deposit-taking corporations except the central bank (S.122); (c) money market funds (MMFs) (S.123); (d) non-MMF investment funds (S.124); (e) other financial intermediaries, except insurance corporations and pension funds (S.125); (f) financial auxiliaries (S.126); (g) captive financial institutions and money lenders (S.127); (h) insurance corporations (S.128); and (i) pension funds (S.129).

Institutional units General government S.13 General government consists of institutional units which are non-market producers whose output is intended for individual and collective consumption, and are financed by compulsory payments made by units belonging to other sectors, and institutional units principally engaged in the redistribution of national income and wealth. (a) central government (excluding social security funds) (S.1311); (b) state government (excluding social security funds) (S.1312); (c) local government (excluding social security funds) (S.1313); (d) social security funds (S.1314).

Institutional units Households S.14 Households consist of individuals or groups of individuals as consumers and as entrepreneurs producing market goods and non-financial and financial services (market producers) provided that the production of goods and services is not by separate entities treated as quasi-corporations. It also includes individuals or groups of individuals as producers of goods and nonfinancial services for exclusively own final use

Institutional units Non-profit institutions serving households S.15 Non-profit institutions serving households (NPISHs) consist of non-profit institutions which are separate legal entities, which serve households and which are private non-market producers.

Institutional units Rest of the world S.2 Rest of the world consists of non-resident units insofar as they are engaged in transactions with resident institutional units, or have other economic links with resident units.

Institutional units Defining an institutional unit Uniformity of behaviour within a sector – Market and Non-market output – Financial and non-financial activity – Government activity Elementary decision making centre with ‘autonomy of decision’ – Take their own decisions – Own goods and assets – Incur liabilities and enter into contracts Can complete a set of accounts.

Institutional units Institutional units: exceptions include: Households Notional resident units Holding companies Quasi corporations

Criteria for classification To classify, the following questions should be asked: Does it have autonomy of decision making? Does/can it produce accounts? Does it produce market output? – And if so: If it doesn’t have autonomy; and Has a different behaviour from its ‘parent’. It can be deemed to have autonomy to enable it to be captured separately

Quasi-corporation Legally dependent Behaves like corporation (produces ‘market output’) Complete set of accounts

Allocation of units to sectors

Market non-market output A crucial distinction: Market output has ‘economically significant prices’ ESA 2010: Economically significant prices are prices which have a substantial influence on the amounts of products producers are willing to supply and on the amounts of products that purchasers wish to acquire.

Market non-market output 50% criterion: if sales to consumers ≥ 50% of costs market < 50% of costs non-market Over a multi-year period.

Market non-market output Sales of goods and services: market output (P.11) increased by payments for non-market output (P.131), if any. Own-account production is excluded. Sales exclude also all payments received from government unless they are granted to other producers undertaking the same activity. Production costs: sum of intermediate consumption, compensation of employees, consumption of fixed capital and other taxes on production. Subsidies on production are not deducted. Own capital formation is excluded.

Market non-market output Implication of 50% boundary: If public sector unit mainly financed by: private sector (sales) market (≥ ) Government non-market

Market non-market output If a public sector unit is mainly financed out of the revenue of purchases by households, financial or non-financial corporations, non-profit institutions or non-residents it is a market producer, to be classified in S.11 or S.12. If a public institutional unit is mainly financed by general government according the unit’s costs or global budget, the unit should be classified as part of S.13. The remaining public institutional units should be classified by sector according to the 50% rule.

Thank you for your attention CONTRACTOR IS ACTING UNDER A FRAMEWORK CONTRACT CONCLUDED WITH THE COMMISSION