National accounts statistics are a-typical statistics in purpose and method. No other statistic intends to provide a complete picture of the national economy. To this end, national accounts statistics use other statistics, administrative data and qualitative information (e.g.
developments reported by branch organisations) as inputs. These very heterogeneous, incomplete, inconsistent, partly outdated and frequently changing data are transformed into one complete, consistent and up-to-date picture of a national economy. Sampling theory and mathematical statistics play only a minor role in this transformation.
Like all statistics outside the textbook-world, national accounts statistics are also influenced by the specific conditions and circumstances of production (skills, resources and policies) and by the specific national demand for data.
The compilation process and the operational model may also influence the available data sources, e.g. when a statistical survey is conducted in order to compile national accounts statistics.
Uses of the national accounts
National accounts statistics and their underlying model are more than a description of the national economy. Three primary roles can be distinguished:
1. Description and object of analysis, e.g. analysis of economic growth according to national accounts statistics;
2. Tool for analysis and forecasting. This applies for example to an explanation of the volume growth of domestic product in terms of the volume growth of the outputs and inputs of the various industries. Another case in point is an analysis or forecast of the impact of increasing oil prices on producer and consumer prices.
3. Tool for communication and decision-making. For example, wage negotiations and international investments of financial and non-financial capital are influenced by the developments indicated by national accounts statistics. Furthermore, for monitoring and managing the European Monetary Union national accounts statistics like volume growth of domestic product and government deficit as a percentage of National Income are employed.
Official national accounts statistics can also play a secondary role, i.e. serve as input for alternative descriptions and budgetary rules. Examples are an overview of the revenue and expenditure by the government, regional accounts, historical time series including the most recent official statistics, extended accounts, green national income, generational accounts and budgetary expenditure ceilings. Some national accounts statistics are part of official statistics in one country and are alternative descriptions in other countries, because they are compiled in a non-official way (e.g. regional accounts compiled by a research institute) or not presented as part of the regular national accounts statistics. So, the concept of alternative descriptions depend on what is included in the official national accounts statistics of a country. Like official national accounts statistics, alternative descriptions can play three different primary
roles: description and object for analysis, tool for analysis and forecasting and tool for private and public decision-making (see above).
In order to asses the relevance of official national accounts statistics, for each of these roles the merits and limitations should be investigated. This concerns clarifying the absolute merits and limitations, i.e. how relevant and reliable are official national accounts statistics for a specific purpose. To this end also the intended and unintended consequences of using official national accounts statistics for specific purposes should be investigated. However, it covers also revealing the relative merits and limitations, i.e. what are the merits and limitations in view of alternative models (economic theoretic models, administrative models and alternative national accounting models) and alternative data (statistics, administrative data sources and research estimates). This amounts to investigating whether official national accounts statistics are more relevant and reliable for a specific purpose than alternative models and data are.
Assessing merits and limitations indicates the potential relevance of official national accounts statistics. However, national accounts statistics not used at all or not used in a proper way are not very relevant. So, the actual relevance of official national accounts statistics depends also on their actual use and their proper use.
National accounts statistics as an econometric model?
As a measurement tool, the national accounts has much more in common with econometric models than with barometers. Both national accounts and econometric models have to bridge the gap between economic theory and economic data. Both national accounts and econometric models have witnessed a period of joint development with economic theory and both have become products quite independent from economic theory. A quote about the history of econometric models may illustrate this:
“In the first half of the twentieth century, the econometricians found themselves carrying out a wide range of tasks: from the precise mathematical formulation of economic theories to the development tasks needed to build an econometric model; from the application of statistical methods in data preparation to the measurement and testing of models. Of necessity, econometricians were deeply involved in the creative development of both mathematical economic theory and statistical theory and techniques … the changing nature of the econometric enterprise in the 1940s caused a return to the division of labour favoured in the late nineteenth century, with mathematical economists working on theory building and econometricians with statistical work. By the 1950s the founding ideal of econometrics, the union of mathematical and statistical economics into a truly synthetic economics, had collapsed” (Morgan, 1990, p. 264).
Both large national accounting systems and large econometric models have a very substantial risk to become incomprehensible, impossible to manage and very cost-inefficient.
In modern times, there are therefore strong demands for simple and small models focused on specific issues. This applies to econometric models as well as to national accounts statistics.
The major merit of large national accounting systems and large econometric models is that they provide a general overview in which various issues can be linked. Both large national accounting systems and large econometric models should not be driven to extremes, as one giant model can never efficiently and adequately serve all purposes47.
47 On the merits and limitations of large econometric models, see e.g. Okker (1998).
Compiling national accounts statistics and building econometric models have also much in common, as they both depend to a great extent on skills and tacit knowledge48. Building econometric models does not amount to simply following the methods recommended by text books. According to Bodkin, Klein and Marwah (1991, p. 533): “in the present state of the discipline, macro econometric model-building is at least as much of an art as it is a set of scientific procedures”.
This was clearly illustrated by two experiments in the practice of econometrics (Magnus and Morgan, 1998). The first experiment was a field trial experiment: participating teams, with different methodological positions, answer specific economic questions using a given data set. The second experiment was a tacit knowledge experiment: an “apprentice” tries to emulate the approaches of three “master” econometricians on the same applied problem. The two experiments confirmed the findings other experimental studies of practice and tacit knowledge. Applying econometric methodologies involves a large element of choice and judgement decisions which rely on tacit knowledge rather than on rule following. This can be clarified by the following quote:
“The importance of tacit knowledge can not be appreciated fully by describing it as the ability to make decisions in the absence of written rules. The decision often involve situations where many different aspects of personal knowledge have to work together: methodological and procedural concerns about how to do applied science; econometric knowledge (part statistical, part economics) about how to do applied econometrics; economic theory knowledge (if modelling and interpretation are involved); knowledge of the data or raw material and knowledge of the tools (software, etc.), and so forth. Situations within which practical decisions have to be made are usually extremely complex … These decisions depend on personal or tacit knowledge (a combination of intellectual knowledge, cognitive skills and more obviously tacit or manual skills), which is partly hidden even to the person who holds the knowledge and thus cannot easily be articulated into rules” (Magnus and Morgan, 1998, p. 378).
Tacit knowledge plays also an important role in the national accounts‟ practice. Tacit knowledge is important in defining the operational model and in compiling national accounts statistics. The national accounts‟ practices also differ substantially among countries and change over time, e.g. because compilers move to other jobs or because new tools and data become available. Experiments in the national accounting practice may also clarify the role of tacit knowledge in national accounts statistics. For example, ask different teams (from various countries, but also from the same national accounts department) to compile national accounts statistics on the basis of a specific data set.
Also the process of defining and agreeing on the universal model will reflect to a substantial extent tacit knowledge of the persons involved. A major merit of the universal guidelines is that much personal knowledge is translated into publicly available information.
The same applies in fact to this thesis: it is an effort to make my personal knowledge explicit and generally accessible.
Large econometric models used for the official forecasts or analyses of the government are part of a political decision-making process in which policy makers and empirical modellers interact (see Den Butter and Morgan, 1998; Boogaard, 1998). The quality of
48 On the importance of skills and tacit knowledge for science, see e.g. Collins (1985), Polanyi (1962) and Turner (1994).
forecasts in such a context depends not only on purely statistical criteria. This is illustrated by a quote from the Director of the Dutch CPB:
“Statistical criteria for forecast quality in practice have limited relevance.
Three non-statistical criteria for forecast quality are put forward: logical coherence, economic coherence and stability. … a forecaster must enable his client to form his opinion on the uncertainty associated with the forecast. To this end, uncertainty variants and alternative scenarios appear adequate.” (Don, 2001, p. 155).
National accounts statistics are also part of a political decision-making process49. As a consequence, non-statistical criteria of quality, like stability, economic coherence and reputation, are also very important for national accounts statistics.
These non-statistical criteria also reflect technical features of the national accounts, like the overall complexity of national accounts statistics and the non-sampling features of many data sources. Balancing the national accounts in view of all available information is many respects similar to the calibration of an econometric model on the basis of stylised facts50. Like for large econometric models, the reliability of national accounts statistics should not only be investigated by purely statistical methods but also by conducting sensitivity analysis like the uncertainty variants and alternative scenarios.
The general view applied
The more detailed discussions in the subsequent chapters are embedded in this general view on the national accounts. In chapter 6, the universal model underlying all official national accounts statistics (i.e. the prescriptions by the international guidelines) is described and discussed. The national measurement process is the topic of chapter 7. The relevance of national accounts statistics for the four major roles is investigated in chapter 8.
49 Econometric models, national accounts and their relationships with politics and society can also be viewed from a wider perspective, i.e. as part of the role of quantification in politics and society. There is a whole literature on this, see e.g. Alonso and Starr (1987), Porter (1995) and Desrosières (1998). A somewhat separate literature exists on accounting, organizations and society, see e.g. Hopwood and Miller (1994).
50 On calibration of economic and econometric models, see Boumans (2001).
Balancing relevance and measurability 6.1 Introduction
The conceptual framework in the international guidelines serves as the universal model of the national accounts („the standard national accounts‟). It indicates in general terms how national accounts statistics should describe the national economy. It defines which parts fall outside the accounting system (e.g. unpaid household services) and prescribes how to record what is inside (e.g. what is the value of government output and what classifications are to be used). In this chapter the standard national accounts (SNA93 and ESA95) are described and discussed.51
Eight perspectives
National accounts statistics describe the national economy. The major perspective of the national accounts is to describe the national economy as a whole. However, in addition to this general perspective, there are seven important specific perspectives incorporated in the standard national accounts.
The standard national accounts describe the national economy as a set of three interacting economic processes (I. Production, II. Distribution and use of income and III.
Accumulation and financing) in which different roles are played by five main groups of economic actors (the institutional sectors Non-financial corporations, Financial corporations, General government and Households52 plus the Rest of the World). The roles played by these five groups of economic actors are five major specific perspectives.
The different economic processes could also be regarded as major specific perspectives.
However, these perspectives overlap to a great extent with that of the four institutional sectors, as different economic processes are dominated by different sectors. For example, the government is the major re-distributor of income and the financial corporations are involved in most financial transactions. Only the perspective of production and generation of income qualifies as being sufficiently distinct. From this perspective, producers should be grouped by industry and not by institutional sector. This perspective is therefore best labelled as the role of industries. All other perspectives with their own data needs can be regarded as the eight perspective. Cases in point are the role of the environment, social protection or regions.
This implies that the eight perspectives of the national accounts are:
1. The national economy as a whole;
2. Non-financial corporations;
3. Financial corporations;
4. Government;
5. Households;
6. Relations with the Rest of the World;
7. Industries;
8. Other perspectives.
These eight perspectives reflect the major groups of data needs.
Structure of the chapter
In this chapter, the standard national accounts are explained and discussed in view of these eight perspectives. Each section is devoted to one perspective (sections 6.2-6.9). The only
51 The international guidelines are being revised. These new (draft) guidelines (SNA08 and ESA09) are discussed in chapter 3 and in the concluding section of this chapter (6.10).
52 In the international guidelines, Non-profit-institutions serving households, like churches, trade-unions and consumer organisations are a separate sector, as they are fundamentally different in character from households.
However, all over the world, the relative size of this sector is very small. For example, in the Netherlands, this sector was in 1998 only responsible for 0.3% of GDP. The sector non-profit-institutions serving households is therefore not given a role as one of the important specific perspectives. In explaining the standard national accounts it is described and discussed as part of the sector Households.
framework. The role of industries and the input-output framework are therefore the topic of one section. As a consequence, the section on the national economy as a whole does not include the input-output framework.
All sections (/annexes) consist of three subsections:
- Description: this subsection describes the concepts and tables of the standard national accounts. It also contains some supplementary concepts and tables.
- Discussion: this subsection discusses these concepts and tables.
- Summary.
Description and Polderland statistics
The heart of the descriptive subsection is always a set of national accounts statistics. This puts the concepts in the guidelines in terms of real world-figures and makes it is easier to see what matters and what not. These statistics describe the national economy of the fictitious country Polderland. In terms of structure and income per capita, Polderland is broadly similar to the Dutch economy, but it is about twice as big.
For explaining and discussing the national accounts, Polderland statistics have been preferred to official Dutch national accounts statistics, as they are a much more flexible tool.
They can be adjusted for pedagogical reasons and for analytical reasons and can also incorporate statistics on detail or aspects where no official Dutch statistics are available.
The Polderland statistics comply to the concepts and classifications in the new international guidelines. However, the presentation is:
- simpler, e.g. by showing less accounts and less detail;
- shows more explicitly underlying logic, e.g. by emphasising more the distinction between actual and imputed flows.
Furthermore, also many supplementary concepts and tables are included, e.g. tables on prices, volumes and key-ratios per perspective or alternative concepts on income and final consumption. In this way it is clearly demonstrated how each perspective can be better served.
The terminology in the Polderland-tables is in most respects that of the international guidelines. However, some adjustments have been made in cases where the official terminology was misleading or just too long. An example of misleading official terminology is the concept 'actual social contributions'. This label is misleading, as it can include substantial amounts of imputations, i.e. property income attributed to holders of pension fund reserves. In several other instances, the official terminology is simply too long. A case in point is the concept 'acquisitions less disposals of non-financial non-produced assets'. We prefer to label this concept 'acquisition of other non-financial assets'. Another example of too lengthy terminology is the balancing item 'changes in net worth due to saving and capital transfers'. We prefer 'saving and capital transfers'.
Discussion
In the second subsection of each perspective, the standard national accounts are discussed from five different angles:
1. as a model of the real world;
2. as a model as such;
3. as a model in view of economic theory;
4. as a model in view of administrative concepts;
5. as a model for various types of economic analyses, policy and private decision-making.
In this way, the absolute and relative merits and limitations of the standard national accounts can be revealed.
Systematic evaluation of the standard national accounts requires evaluation in view of all data needs and data possibilities. This evaluation can be formalised by defining the utility of the standard national accounts as a function of data needs and data possibilities.
U(SNA) = f (Wup, Rup, Mup, Fup) (1)
- the relative importance of the various uses and perspectives (Wup);
- the relevance of the standard national accounting concepts for each use and perspective (Rup);
- the quality of the measurement for each use and perspective (Mup);
- the user-friendliness of the standard national accounts for each use and perspective (Fup).
The function makes explicit that there can be trade-offs between different data needs and that relatively important data uses should have a bigger say in deciding on specific conventions.
Wup = 1 (2)
Equation 2 indicates that the relative weights of all uses and perspectives add up to 1 (100%).
Rup (SNA) = g (Nt, SD, ET, A, CP, CO) (3)
Equation 3 indicates that the relevance of the standard national accounting concepts for a specific use and perspective depends also on the national circumstances all over the world;
these circumstances can change over time (Nt). For example, hyper-inflation drastically reduces the relevance of the standard national accounts in current prices.
The relevance of the basic concepts for a specific use can be judged on the basis of five criterions:
1. The relevance of the scope and detail in general (SD);
2. The relevance from an economic theoretic point of view (ET);
3. The relevance from an administrative point of view (A);
4. Comparability (CP); this encompasses both comparability over time and international comparability;
5. Consistency (CO) (about the importance of consistency, see section 6.2.2).
Mup (SNA) = h (MBt, Ct, Nt) (4)
Equation 4 indicates that the quality of measurement for a specific use and perspective (Mup) depends on measurability in general (MBt), the costs of measurement in general (Ct) and the national circumstances (Nt). For example, in some countries a high quality of measurement can be possible at cheap costs, while in other countries even high compilation costs can not
Equation 4 indicates that the quality of measurement for a specific use and perspective (Mup) depends on measurability in general (MBt), the costs of measurement in general (Ct) and the national circumstances (Nt). For example, in some countries a high quality of measurement can be possible at cheap costs, while in other countries even high compilation costs can not