The Supply and Use Framework of National Accounts

The Supply and Use Framework of National Accounts Joerg Beutel Konstanz University of Applied Sciences, Konstanz, Germany beutel@htwg-konstanz.de 1. Introduction The System of National Accounts 2008 - SNA 2008 (United Nations et al., 2009) provides a comprehensive conceptual and accounting framework for compiling the main macroeconomic data. Supply and use tables and institutional sector accounts are key structural elements of the SNA. The process of compiling these tables is a powerful way of ensuring consistency between the various data sources available to the compiler. The supply and use framework is also appropriate for calculating much of the economic data contained in the national accounts and detecting weaknesses. This is particularly important for the decomposition of values of flows of goods and services into prices and volumes for the calculation of an integrated set of price and volume measures. The supply and use framework (Beutel, 2017) consists of two types of tables: supply and use tables and symmetric input-output tables. In principle, supply and use tables are rectangular tables with often many more products than industries. Most statistical offices aggregate the rectangular supply and use tables to symmetric supply and use tables. Transformation models are used to transform the symmetric supply and use tables into symmetric input-output tables with equal column and row totals. The symmetric input-output tables constitute the data base for many macroeconomic models and different approaches for impact analysis. Input-output tables are therefore analytical constructs that inevitably involve some degree of modelling in their compilation. Symmetric input-output tables offer considerable advantages for many analytical purposes. As an analytical tool, input-output data are conveniently integrated into various macroeconomic models. Input-output analysis also serves a number of other analytical uses. However, the user of input-output data should keep in mind that rectangular supply and use tables are closer to actual observations and statistical sources than symmetric inputoutput tables. In addition to the roles of the supply and use framework, this accounting framework serves also as a basis for various interconnections with satellite accounts, such as employment statistics, linkages with physical flows (land use, energy), linkages with other physical flows related to environmental issues (emissions, waste, sewage) and other forms of satellite systems (tourism, transport, health, education). Important examples for such systems are Social Accounting Matrix (SAM), System of Environmental- Economic Accounting (SEEA), Physical Input-Output Tables and Extended Input-Output Tables. 2. Supply, use and input-output tables as integral part of the national accounts Supply and use tables are an integral part of the System of National Accounts (SNA). They play an important role as an integration framework of the national accounts. As a key feature of national accounts, supply and use tables provide the ideal concept for balancing supply and demand. The supply and use system is the best framework for compiling both GDP at current and at constant prices in an integrated approach. Supply and use tables constitute the centre piece of the internationally compatible accounting framework for a systematic and detailed description of the economy, its various components on the supply and demand side and its relations to other economies. While supply and use tables are data-oriented in nature, the symmetric input-output tables are always constructed from having made certain analytical assumptions, usually from existing supply and use tables. The system recommends that the statistical supply and use tables should serve as the foundation from which the analytical input-output tables are constructed. This explains the importance given to the description of supply and use tables in the SNA 2008, while the more technical description of constructing symmetric input-output tables are shown in the forthcoming Handbook on Supply, Use and Input-Output Tables with Extensions and Applications (United Nations, 2017) of the United Nations Statistical Division. SNA and data sources Many basic sources are used to compile the national accounts. In general, a mixture of administrative records and statistical surveys is used as sources for the national accounts. The sample frame for the main surveys is determined by an Establishment Census or the General Business Register. The General Business Register is an important instrument of the statistical system. It

comprises in principle all production units, listing names and addresses of all financial and non-financial corporations operating in the economy. Basic structure of the SNA The SNA includes four types of tables: goods and services account; institutional sector accounts; supply and use tables and analytical input-output tables. The SNA comprises supply and use tables and institutional accounts which ideally are balanced at the same time. For analytical purposes the supply and use tables are transformed to symmetric input-output tables. The institutional accounts include the goods and services account, the rest of the world account and the institutional sector accounts for nonfinancial corporation, financial corporations, general government, households, non-profit institutions serving households. Supply and use framework The supply and use framework is that part of the national accounts system which focuses on the production in an economy. It reflects the production of industries in which intermediate products and primary inputs (labour, capital, land) are required. Supply and use tables show where goods and services are produced and where they are used in intermediate consumption, final consumption, gross capital formation and exports. The supply and use framework provides the most important macroeconomic aggregates such as GDP, value added, consumption, investment, imports and exports. The supply and use system is the adequate accounting framework for compiling consistent and reliable national accounts data. In consequence, it is recommended that the compilation of national accounts data - both in current prices as well as in constant prices - should be based on a supply and use framework. Supply and use tables provide an ideal framework for checking the consistency of statistical data on flows of goods and services obtained from different sources. They also serve as a framework for economic statistics, both conceptually for ensuring the consistency of definitions and concepts used and as an accounting framework for ensuring numerical consistency of data obtained from different sources. The framework also allows basic economic data to be entered into the system in exactly the same structure in which the basic data can be surveyed and observed. Gross domestic product The annual estimates of gross domestic product (GDP) are obtained from the production, income and expenditure approaches and reconciled using supply and use tables. Some countries have a long tradition and much experience in utilising detailed production data based on local KAU (the establishment) as the statistical unit for compiling GDP estimates according to the production approach. The main classification schemes used are the activity classification based on The International Standard Industrial Classification of All Economic Activities (ISIC) and the product classification based on the Central Product Classification (CPC). Supply, use and input-output tables Supply and use tables manly serve statistical purposes. They are closer to the main sources of national accounts than input-output tables. They form a central part of the SNA and provide the framework for checking the consistency of statistics on flows of goods and services and primary inputs obtained from quite different statistical sources industrial surveys, household expenditures inquiries, investment surveys, foreign trade statistics etc. Supply and use tables provide a detailed picture of the supply of goods and services by domestic production and imports and the use of goods and services for intermediate consumption and final use (consumption, gross capital formation, exports). The use table also shows how the components of value added (compensation of employees, other net taxes on production, capital consumption, net operating surplus) are generated by industries in the domestic economy. Thus, supply and use tables provide detailed information on the production processes, the interdependencies in production, the use of goods and services and generation of income generated in production. The supply and use tables also form the basis for deriving symmetric input-output tables by applying certain assumptions to the relationship between outputs and inputs. Symmetric input-output tables are the basis for input-output analysis. They mainly serve analytical purposes and are often used for impact analysis, macroeconomic models, price models, productivity analysis, etc. Input-output data also serve

a number of other analytical purposes by linking other major statistics (employment, capital, energy, and environment) to the system of national accounts. The classifications in the symmetric input-output tables match with those in the supply and use tables, as the former is a transformation of the latter. The symmetric input-output table is accompanied by a symmetric input-output table for domestic output and a matrix showing the use of imports. The classifications are totally compatible with those used within the framework of the United Nations. The supply and use tables and input-output tables of the SNA relate products and industries. The classification used for industries is the International Standard Industrial Classification of Economic Activities (ISIC) and the classification employed for products is the Central Product Classification (CPC). A comprehensive system of supply, use and input-output tables includes the following tables: SUPPLY AND USE TABLES AT PURCHASERS PRICES 1. Supply table at basic prices, including a transformation into purchasers' prices 2. Use table at purchasers' prices TRADE AND TRANSPORT MARGINS 3. Wholesale trade margins table 4. Retail trade margins table 5. Inland transport margins table 6. Water transport margins table 7. Air transport margins table TAXES LESS SUBSIDIES ON PRODUCTS 8. Non-deductible VAT table 9. Taxes on products table 10. Subsidies on products table SUPPLY AND USE TABLES AT BASIC PRICES 11. Supply table at basic prices 12. Use table at basic prices 13. Use table of domestic production at basic prices 14. Use table of imports at basic prices SYMMETRIC INPUT-OUTPUT TABLES AT BASIC PRICES 15. Input-output tables at basic prices 16. Input-output tables of domestic output at basic prices 17. Input-output tables of imports at basic prices Supply and use tables are rectangular tables with many more products than industries describing the domestic production process of industries and the transaction of products for intermediate and final use of the national economy in great detail. The valuation matrices for trade and transport margins and taxes less subsidies are also rectangular matrices corresponding to the outlay of the supply and use tables for products. The symmetric input-output tables are square matrices with the same number of products and industries and equal column and row totals for each product and corresponding industry. 3. Compilation of supply and use tables The compilation of supply, use and input-output tables is explained in detail in the Eurostat Manual of Supply, Use and Input-Output Tables (Eurostat, 2008). Supply and use tables are fully integrated into the SNA. The institutional approach to compile GDP with the production approach, the income approach and the expenditure approach are fully reflected in the supply and use tables. At the same time the supply and use tables are fully compatible with the sector accounts. They constitute the ideal framework for balancing the national accounts. Rectangular supply and use tables are the appropriate database for deflating GDP on a product basis if information on product prices is available at the more disaggregate level.

The supply table The supply table shows the supply of goods and services by type of product of an economy for a given period of time. In practice, supply tables are large rectangular tables with many more products than industries. It distinguishes between the output of domestic industries and imports. The valuation matrices for trade and transport margins and taxes less subsidies on products allow a transformation of supply from basic prices to purchasers prices. The supply table comprises three major parts: domestic output at basic prices with specific information on primary and secondary activities, imports of goods and services and valuation matrix with vectors for trade and transport margins, value added tax other taxes on products and subsidies on products.in a first step total domestic output at basic prices and imports CIF are aggregated to total supply at basic prices. CIF (cost insurance, freight) values include the insurance and freight charges incurred between the exporter s frontier and that of the importer. In a second step the valuation vectors of trade and transport margins and taxes less subsidies on products are added to total supply at basic prices to arrive at total supply at purchasers prices. The use table A use table shows the use of goods and services by product and by type of use for intermediate consumption by industry, final consumption expenditure, gross capital formation or exports. The use table also shows the components of gross value added by industry for compensation of employees, other taxes less subsidies on production, consumption of fixed capital, and net operating surplus. The use table contains three main matrices: intermediate consumption at purchasers prices, final uses at purchasers prices and value added at basic prices. The use table has two main objectives. Firstly, it reveals by column the input structure of each industry. Secondly, it describes in the rows the use of different products and primary inputs (labour and capital). The costs of production are shown in the columns of the use table for each industry. The total output of an industry at basic prices corresponds to the total output of an industry as reported in the supply table. If the industry output is given and the intermediate consumption of products determined in the use table, value added of an industry can be estimated as a residual variable. However, if the main components of value added (compensation of employees, other net taxes on production, consumption of fixed capital) are known, net operating surplus is treated as the final residual variable. In the use table, total output and value added are recorded at basic prices. The valuation matrices In the supply and use system, the valuation concepts constitute an important element. Transactions are valued at the actual prices agreed upon by the seller and buyer. Market prices are thus the basic reference for valuation in the supply and use system. In the absence of market transactions, valuation is made according to costs incurred (non-market services produced by government) or by reference to market prices for analogous goods and services (services of owner-occupied dwellings). The SNA 2008 distinguishes two main valuation concepts of the flows of goods and services: basic prices and purchasers prices. The difference between these two basic valuation concepts relates to trade and transport margins on the one hand, and to taxes less subsidies on products on the other. Producers prices were the main valuation concept in the former system of national accounts. When we also introduce the concept of producers prices, the difference between these two valuation concepts can be attributed to the two factors. The relationship between the different types of prices is the following: Purchasers prices (excluding any deductible VAT) - Non-deductible VAT - Trade and transport margins = Producers prices - Taxes on products (excl. VAT) + Subsidies on products

= Basic prices Trade and transport margins are the difference between purchasers and producers prices, and taxes less subsidies on products are the difference between producers prices and basic prices. Even if the concept of producers prices is not any more part of the system, the relationship still holds. However, the basic data which are used to compile the supply and use tables have different valuations. Production and output data are usually valued at basic prices, d Data on intermediate consumption and final use are usually valued at purchasers prices, imports are valued at CIF-prices and exports are valued at FOBprices. Without separating the different valuation components of the product flows, a supply and use framework cannot be balanced and made consistent. It is thus the task of the valuation matrices to bridge the differences between the valuation at purchasers prices and the valuation at basic prices. The valuation matrices comprise all flows that are related to the supply and use of trade and transport margins and the supply and use of taxes less subsidies on products. On the supply-side, valuation matrices are needed to transform supply from basic prices to supply at purchasers prices and thus to be able to balance supply and use at purchasers prices. On the use-side, valuation matrices are required to transform the use data from purchasers prices into basic prices. Balancing supply and use One central feature of the System of National accounts is the balancing process of the system. Balanced macroeconomic data can be derived on a more aggregate level by applying the production, income and expenditure approaches. However, the enhanced option is to balance the system at the same time for the institutional sector accounts and the supply and use tables at a much deeper level of products and industries, both at current prices and at constant prices. The balancing starts with compiling preliminary estimates of all required inputs to assemble a first assessment of the supply and use table at purchasers prices and at basic prices. The required information contains production matrix at basic prices, use table at purchasers prices, use table of imports at basic prices and the valuation matrices. Ideally this information is calculated for rectangular matrices with many more products than industries. At the start of balancing an estimate is available for every entry of the supply table, the use table and the valuation matrices. However, in spite of all efforts it has to be expected that inconsistencies in the estimates remain. The differences can be caused by inaccuracies and inappropriate margins in the preceding estimates, errors in the specification items, non-observed changes of inventories and simply calculation errors. The conclusions for compiling supply and use tables as an integral part in the production of national accounts are the following: Supply and use tables are the most efficient way to incorporate all basic data aggregated or detailed into the national accounts framework in a systematic way. Supply and use tables effectively ensure the consistency of results at a detailed level and thereby improve the overall quality of the national accounts. Input-output tables mainly serve analytical purposes and are used as database for macroeconomic models. 4. Transformation of supply and use tables to symmetric input-output tables In a first step rectangular supply and use tables are aggregated to symmetric supply and use tables. In a second step these symmetric supply and use tables are transformed to symmetric input-output tables. Symmetric supply and use tables at basic prices constitute the data base which is required for the transformation of supply and use tables to symmetric input-output tables. The database for the transformation includes the following tables: Supply Table at basic prices, Use Table at basic prices, Use Table for domestic output at basic prices and Use Tables for imports at basic prices. Transformation models

Four basic models can be used for the transformation of supply and use tables to symmetric input-output tables. The transformation models are discussed in detail in Chapter 11 of the Eurostat Manual of Supply, use and Input-Output Tables (Eurostat, 2008). Model A and Model B generate product by product input-output tables which are based on technology assumptions. The input-output tables show products and primary inputs in the rows as they were reported in the use table. However, a transformation is required for industries to homogenous units of production. Model C and Model D result in industry by industry input-output tables which are based on fixed sales structures assumptions. In these cases product rows have to be transformed to bundles of products (product groups) which are provided by industries, while the columns remain as in the use table. The four basic transformation models are based on the following assumptions: Product technology assumption (Model A) Each product is produced in its own specific way, irrespective of the industry where it is produced. Industry technology assumption (Model B) Each industry has its own specific way of production, irrespective of its product mix. Fixed industry sales structure assumption (Model C) Each industry has its own specific sales structure, irrespective of its product mix. Fixed product sales structure assumption (Model D) Each product has its own specific sales structure, irrespective of the industry where it is produced. The most frequently applied method for compiling product by product input-output tables is Model A. If countries decide to compile industry by industry input-output tables, most of the time Model D is applied. The implementation of Model A bears the risk of running into negatives. Model D avoids negative transactions but has only a loose link to product statistics. 5. System of environmental-economic accounting Production and consumption activities of the economic system produce goods and services being used for consumption and capital formation and built up labour and man-made capital. However, at the same time these activities also produce joint products in form of residuals affecting the ecological systems. The ecological systems are endangered if the production of residuals is larger than the natural regeneration capacity of the ecological systems. With a rapidly growing world population recycling of residuals becomes more and more important. A full understanding of this process demands a complete understanding of the physical dimension of the economy. Physical Supply and Use Tables (PSUTs) and Environmental-Extended Input-Output Tables (EE-IOTs) are used to describe the magnitude (measured by tonnes or other physical measuring units) and the nature of materials and products flowing in the economy, within the economy and between the economy and nature. They show how the natural resources (natural inputs) enter, are processed and subsequently, as products, are moved around the economy, used and finally returned to the natural environment in the form of residuals (emissions, waste, waste water, etc.). The exchange of products between the domestic economy and the rest of the world is also described in the PSUTs and EE-IOTs. The System of Environmental-Economic Accounting SEEA (United Nations et al., 2014) is fully integrated into SNA 2008. It represents a consistent set of accounts for the economic system and the environment. Contained are the internationally agreed standard concepts, definitions, classifications, accounting rules and tables for producing internationally comparable statistics on the environment and its relationship with the economy. The SEEA Central Framework encompasses measurement in three main areas: the physical flows of materials and energy within the economy and between the economy and the environment; the stocks of environmental assets and changes in these stocks; and economic activity and transactions related to the environment. The measurement of the physical flows of materials and energy that enter and leave the economy and flow within the economy itself is a key focus of the SEEA. These physical flows are recorded in physical supply and use tables which are complements of the monetary supply and use tables of the SNA. Reported are natural inputs from the environment to the economy, for example, minerals, timber, water, and others. Physical flows within the economy are products, for example, agricultural goods,

manufactured goods, electricity, and other goods. Flows from the economy to the environment are residuals of all kind, for example, waste, air emissions, sewage, etc. Physical supply and use tables The PSUTs follows as close as possible the structure and classifications of the SUTs. An important difference between the SUTs and PSUTs is that the PSUTs also include the physical flows not having a monetary value. The starting point for the PSUTs is the balanced SUTs as compiled as part of the National Accounts. With the physical flows having a monetary value, the flows not having a monetary value are added like natural inputs, waste and emissions. The integration of all physical flows in the PSUTs generates a consistent and coherent set of data which is also consistent with the monetary information contained in the monetary SUTs of the SNA. Extended input-output tables Extended Input-Output Tables (EIOTs) and models have become a powerful tool in supporting environmental and economic analyses and policies. If, for example, IOTs are extended to include environmental information, then this allows for establishing a solid foundation for environmental policy analysis. Extended Input-Output Tables (EIOTs) comprise useful information of satellite systems which are integrated into the National Accounts. They often include information on investment, capital and labour. However information on energy, air emissions, waste, sewage and water is also needed and should be added to the tables. The EIOT of Germany for the year 2009 incorporate seven additional satellite systems: 1. Input-Output Table (Mio. Euro) 2. Gross fixed capital formation (Mio. Euro) 3. Capital stock (Mio. Euro) 4. Employment (1.000 Persons) 5. Energy use (Petajoule) 6. Air emissions (1.000 tons) 7. Global warming, acid deposition and tropospheric ozone formation (1.000 tons) 8. Waste, sewage and water (1.000 tons, Mio. cbm) The first part of the EEIOTs contains the traditional part of the National Accounts. This includes the domestic production of goods and services, taxes less subsidies on products and GVA at basic prices. The next sets of matrices below the IOTs are derived from satellite systems which are integrated into the input-output framework. These matrices provide useful information for the various industries on investment (for example, machinery and buildings), capital stock (for example, machinery and buildings) and employment (for example, number of wage and salary earners and self-employed). The following set of matrices of the satellite system contain information on energy consumption, emissions of gases and other residuals (for example, waste, sewage) by production and consumption activities. The first three matrices (IOTs, investment and capital stock) contain values, the next matrix for employment shows persons and the last four matrices represent quantities (labour, energy, emissions, waste, sewage and water). References Beutel, Joerg (2017): Chapter 3 (The supply and use framework in the national accounts), in: Thijs ten Raa (ed.): Handbook of Input-Output Analysis, Edward Elgar Publishing Ltd, forthcoming. Eurostat (2008): Eurostat Manual of Supply, Use and Input-Output Tables 2008 edition, European Communities, Luxembourg. United Nations et al. (2009): System of National Accounts 2008 - SNA 2008, New York 2009. United Nations et al. (2014): System of Environmental-Economic Accounting 2012 Central Framework (SEEA CF), New York. United Nations (2017): Handbook on Supply, Use and Input-Output Tables with Extensions and Applications, New York (forthcoming)