Council Regulation (EC) No 2223/96 of 25 June 1996 on the European system of national and regional accounts in the Community

			Industries (NACE) 1 2 3 … … n	(1)	Final uses (a) (b) (c) (d) (e) f)	(3)	(1) + (3)
			(1)	(2)	(3)	(4)	(5)
Products (CPA)	1	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	2	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	3	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	m	(1)	Trade and transport margins on intermediate consumption by product and by industry		Trade and transport margins on final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
(1)	(1)	(2)	Trade and transport margins on intermediate consumption by industry		Trade and transport margins on final uses by type		Total trade and transport margins

Table 9.8 — A simple taxes less subsidies on products table

			Industries (NACE) 1 2 3 … … n	(1)	Final uses (a) (b) (c) (d) (e) (f)	(3)	(1) + (3)
			(1)	(2)	(3)	(4)	(5)
Products (CPA)	1	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	2	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	3	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	m	(1)	Taxes less subsidies on products on intermediate consumption by product and by industry		Taxes less subsidies on products for final uses: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
(1)	(1)	(2)	Taxes less subsidies on products for intermediate consumption by industry		Taxes less subsidies on products for final uses by type		Total taxes less subsidies on products

• 9.40. The transport margins include transportation costs paid separately by the purchasers and included in the use of products at purchasers' prices but not in the basic prices of a manufacturers' output or in the trade margins of wholesale or retail traders. Such transport margins include in particular:

• (a) transport of goods from the place where it is manufactured to the place where the purchaser takes delivery of it in case the manufacturer pays a third party for the transport, if this amount is invoiced separately to the purchaser;

• (b) transport of goods arranged by the manufacturer or by the wholesale or retail trader in such a way that the purchaser has to pay separately for the transport costs even when the transport is done by the manufacturer or the wholesale or retail trader himself.

All other costs of transporting goods are not recorded as transport margins, e.g.:

• (a) if the manufacturer transports the goods himself, these transportation costs will be included in the basic prices of the manufacturer's output; this transport represents an ancillary activity and the individual costs of transport will be not identifiable as transportation costs;

• (b) if the manufacturer arranges for the goods to be transported without a separate invoice for the transport services, these transportation costs will be included in the basic prices of the manufacturer's output; these transportation costs will be identifiable as such and be recorded as part of the manufacturer's intermediate consumption;

• (c) if wholesale and retail traders arrange for goods to be moved from where they take delivery of them to where another purchaser takes delivery, these costs will be included in the trade margin if no separate charge is made for transportation to the purchaser. Again, as with manufacturers, these costs may represent ancillary activity of wholesale and retail traders or the purchasers of an intermediate service, thus entering trade margins but not transport margins;

• (d) if a household buys goods for final consumption purposes and arranges for transport by a third party, these transport costs are recorded as final consumption expenditure on transport services and not included in some trade or transport margin.

• 9.41. Table 9.7 shows a somewhat simplified picture of a trade and transport margins matrix, because:

• (a) no explicit distinction is made between trade and transport margins. Both types of margins could be shown for each product group. Another solution is to have separate tables: one for trade margins and one for transport margins;

• (b) for trade margins, a distinction between wholesale trade and retail trade should be made in order to take account of the differences in their prices. In drawing up the tables, it should be realized that wholesale traders may also sell directly to households (e.g. furniture) and that retail traders may also sell to industries (e.g. to cafes and restaurants);

• (c) in calculating and analysing trade margins on products for final consumption expenditure by households, for each product group the most important distribution channels could also be distinguished in order to take account of the differences in their prices; the distinction between wholesale trade and retail trade is in fact too rough. For example, goods and services can be bought by households in the supermarket, the grocery, flower shop, department store, abroad or obtained as income in kind. Furthermore, for some products, secondary sales may be very important, e.g. in the case of cigarettes this can pertain to the sales by cafes, restaurants and petrol stations. Of course, such more refined distinctions can only be introduced if the available data sources provide sufficient information for at least rough estimates of the importance of each of the distribution channels;

• (d) in calculating transport margins, a distinction by type of transport (e.g. by rail, air, sea/inland waterway or road) could be very useful.

• 9.42. Taxes on production and imports consist of:

• (a) taxes on products (D.21):
• 1. value-added-type taxes (VAT) (D.211);
• 1. taxes and duties on imports; except VAT (D.212);
• 1. taxes on products, except VAT and import taxes (D.214);

• (b) other taxes on production (D.29).

Similar categories are distinguished for subsidies on production and imports. Subsidies are treated as if they were negative taxes on production and imports.

The definitions of all these categories are given in paragraphs 4.14 to 4.39.

• 9.43. Supply at basic prices includes net other taxes on production, i.e. less other subsidies on production. In order to make the transition from basic prices to purchasers' prices (or vice versa; see paragraph 9.34), the various taxes on products should be added and the subsidies on products should be deducted (or vice versa).

• 9.44. VAT may be deductible, non-deductible or just not applicable:

• (a) deductible VAT usually applies to most of intermediate consumption, most of gross fixed capital formation and part of changes in inventories;

• (b) non-deductible VAT often applies to final consumption expenditure, parts of gross fixed capital formation, part of changes in inventories and part of intermediate consumption;

• (c) VAT is in general not applicable for:
• 1. exports (at least those to countries outside the European Union);
• 1. any goods or services subject to a zero rate of VAT regardless of their use;
• 1. any producers exempted from VAT registration, e.g. small business and religious organizations.

• 9.45. VAT is recorded net in the ESA: all supplies are valued at basic prices, i.e. excluding invoiced VAT; intermediate and final uses are recorded at purchasers' prices, i.e. excluding deductible VAT.

• 9.46. Table 9.8 on taxes less subsidies on products is simplified, because:

• (a) the different types of taxes on products are not distinguished and subsidies are not shown separately;

• (b) different tax rates and subsidies can apply to different distribution channels; the latter should therefore also be distinguished when relevant and sufficient information exists.

• 9.47. The way of recording taxes and subisidies on products is defined in points 4.27 and 4.40 respectively. Taxes (and subsidies) on products are usually estimated by product by applying the official tax (subsidy) rates to the various flows. Afterwards an analysis should be made of the differences with the tax assessments or the amounts actually paid.

• (a) Some of these differences indicate that the initial estimate of taxes on products does not comply to the ESA definitions:
• 1. in case of exemption the initial estimate of taxes on products should therefore be lowered;
• 1. in case of evasion of the payment of taxes on products (e.g. the payment of taxes is compulsory but there is no tax assessment), the estimate of taxes on products should therefore be lowered;
• 1. in case of fines the estimate of taxes on products should be increased.

Changes in the estimates of taxes on products have concomitant effects on variables estimated by adding up or deducting the estimates of taxes on products. For example, output at basic prices of a specific product group may be estimated by deducting inter alia taxes on products from the estimated use at purchasers's prices. However, an estimate of output at basic prices may also be combined with inter alia estimates of taxes on products to arrive at an estimate of uses at purchasers' prices.

• (b) Several other types of differences should not be accounted for in the supply and use table:
• 1. differences in timing, e.g. payments may relate to tax assessments of several years;
• 1. enterprises being unable to pay (bankruptcies) : this should be recorded as an other change in the volume of financial assets and liabilities, i.e. not in the supply and use table.

• (c) In some instances, the differences may also indicate that the initial estimate for taxes and subsidies on products is subject to serious error, e.g. because the output of some product is underestimated. Then also modifications of the estimates of the flows of goods and services can be justified.

In the transition from uses by product at purchasers' prices to basic prices, the modification of the initial estimate of taxes and subsidies on products may be shown as a separate item. However, for all input-output calculations it will be necessary to allocate this modification by product, even if this can only be based on a simple mathematical device, e.g. proportional allocation.

• 9.48. The use table 9.6 does not show to what extent the goods and services used have been produced domestically or imported. This information is necessary for all analyses in which the link between supply and use of goods and services within the national economy plays a role. A case in point is the analysis of the impact of changes in exports or final consumption expenditure on imports, domestic production and related variables such as employment. In fact, it applies to most analyses indicated in paragraphs 9.14 and 9.15. The input-output framework therefore contains also a use table for imported products and one for domestically produced goods and services (see tables 9.9 and 9.10).

• 9.49. The use table for imported products should be compiled by exploiting all information available on the uses of imports, e.g. for some products the major importing enterprises may be known and for some producers information on the amount of imports may exist. However, in general, direct statistical information on the use of imports in scarce. This information has therefore usually to be supplemented by assumptions by product group.

• 9.50. The use table for goods and services produced domestically can then be obtained by deducting the use table for imported products from the general use table.

Table 9.9 — A use table for imports

			Industries (NACE) 1 2 3 … … n	(1)	Final uses (a) (b) (c) (d) (e) (f)	(3)	(1) + (3)
			(1)	(2)	(3)	(4)	(5)
Products (CPA)	1	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	2	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	3	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	m	(1)	For imported products: Intermediate consumption at cif values by product and by industry		For imported products: Final uses at cif values: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
(1)	(1)	(2)	Total intermediate consumption of imported products by industry		Total final uses of imported products by type		Total imports

Table 9.10 — A use table at basic prices for domestic output

			Industries (NACE) 1 2 3 … … n	(1)	Final uses (a) (b) (c) (d) (e) (f)	(3)	(1) + (3)
			(1)	(2)	(3)	(4)	(5)
Products (CPA)	1	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	2	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	3	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	m	(1)	For domestic output: Intermediate consumption at basic prices by product and by industry		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
(1)	(1)	(2)	Total intermediate consumption of domestic output at basic prices by industry		Final use of domestic output at basic prices		Total domestic output
Use of imported products	Use of imported products	(3)	Total intermediate consumption of imported products by industry		Final use of imported products at basic prices		Total imports
Net taxes on products	Net taxes on products	(4)	Net taxes on products for intermediate consumption by industry		Net taxes on products for final use		Total net taxes on products
(1) + (3) + (4)	(1) + (3) + (4)	(5)	Total intermediate consumption at purchasers' prices by industry		Total final uses by type		Total use
Compensation of employees Other net taxes on production Consumption of fixed capital Operating surplus, net	Compensation of employees Other net taxes on production Consumption of fixed capital Operating surplus, net	(6)	Components of value added by industry
(6)	(6)	(7)	Value added by industry
(1) + (3) + (4) + (6)	(1) + (3) + (4) + (6)	(8)	Output at basic prices by industry
Fixed capital formation Fixed capital stock Labour inputs	Fixed capital formation Fixed capital stock Labour inputs	(9)

• 9.51. In order to serve more specific purposes, the supply and use tables presented above can be modified by introducing alternative and supplementary classifications. Important cases in point are:

• (a) more detailed product and industry classifications based on national classifications or to take account of specific purposes, e.g. for the analysis of the role of research and development in the national economy;

• (b) more detailed geographical breakdown of imports and exports, e.g. intra-European Union trade subclassified by country and extra-European Union trade subclassified by economic regions and some specific countries such as the United States and Japan;

• (c) classification of imports into:
• 1. imports of products that are also domestically produced (‘competitive imports’);
• 1. imports of products that are not domestically produced (‘complementary imports’). Both types of imports can be expected to have a different relationship with and importance for the national economy. Competitive imports can be the subject of analysis and economic policy as they may be a substitute for domestic output; they could therefore be incorporated as a separate category of (potential) final use in the use tables. For complementary imports, analyses will mainly focus on the impact of changes in their prices or volume (e.g. in the case of an oil crisis) on the national economy;

• (d) classification of compensation of employees by criteria such as level of education, part-time/full-time, age and sex. This classification could then also be applied to the supplementary information on employment. In this way, the supply and use tables can also be used for all kinds of analyses of the labour market.

• (e) breakdown of compensation of employees into:
• 1. wages and salaries, of which:
• — social contributions by employees ([^E0108]);
• 1. employers' social contributions. This breakdown permits analysis of the role of social contributions for the price of labour inputs and the shifting of this burden towards gross operating surplus;

• (f) classification of final consumption by purpose (for households: Coicop and for government: Cofog). The functional classification of this expenditure enables the impact of each function of the rest of the economy to be assessed. For example, the importance of public and private expenditure on health care, transport and education can then be assessed. Another case in point is the analysis of the impact of government expenditure on defence for some domestic industries, in particular the producers of aircraft, trucks and weapons;

• (g) reclassification of fixed capital formation and fixed capital stock for fixed assets that are rented out by the owner, e.g. in the case of operating leasing: the fixed assets can be recorded as if owned by the user (unlike the standard treatment in the ESA). The purpose of this reclassification is to make the cost structures of industries that rent fixed assets and those that own similar fixed assets comparable. For a consistent accounting treatment, this reclassification requires also the modification of the intermediate consumption of the lessee and the output of the lessor by the amount of the rent of the fixed asset;

• (h) reclassification of employment and compensation of employees for labour contracted out and persons working via temporary employment agencies: the purpose of this reclassification is to make the cost structure of industries more comparable by recording persons as employees in the industries ‘where they actually work’. This reclassification also amounts to a modification of the concepts of intermediate consumption and output of the industries involved.

TABLES LINKING THE SUPPLY AND USE TABLES TO THE SECTOR ACCOUNTS

• 9.52. The information in the supply and use tables should be linked to the sector accounts, to ensure that the supply and use table is consistent with the sector accounts. This is achieved by introducing a table with variables cross-classified by industry and by sector (see table 9.11).

Image omitted; see official source

SYMMETRIC INPUT-OUTPUT TABLES

• 9.53. In the ESA, the product-by-product input-output table is the most important symmetric input-output table and this table is described here.

• 9.54. The product-by-product input-output table (see tables 9.4 and 9.12) can be compiled by converting the supply and use tables, both at basic prices. This involves a change in format, i.e. from two asymmetric tables to one symmetric table (see paragraph 9.09). The conversion can be divided into three steps:

• (a) allocation of secondary products in the supply table to the industries of which they are the principal products;

• (b) rearrangement of the columns of the use table from inputs into industries to inputs into homogeneous branches (without aggregation of the rows);

• (c) aggregation of the detailed products (rows) of the new use table to the homogeneous branches shown in the columns, if appropriate.

• 9.55. Step (a) involves transfers of outputs in the form of secondary products in the supply table. Since secondary products appear as ‘off-diagonal’ entries in the supply table, this kind of transfer is a comparatively simple matter. These secondary products are treated as additions into the industries for which they are principal and removed from the industries in which they were produced.

• 9.56. Step (b) is more complicated, as the basic data on inputs relate to industries and not to each individual product produced by each industry. The kind of conversion to be made here entails the transfer of inputs associated with secondary outputs from the industry in which that secondary output has been produced to the industry to which they principally (characteristically) belong. In making this transfer, two different approaches might be taken:

• 1. by means of supplementary statistical and technical information;

• 1. by means of assumptions.

• 9.57. Supplementary statistical and technical information should be utilized as much as possible. For example, it might be possible to obtain specific information on the inputs required to produce certain kinds of output. However, information of this kind is usually incomplete. Ultimately it will usually be necessary to resort to simple assumptions to make the transfers.

Table 9.12 — A symmetric input-output table at basic prices (product by product)

			Product (CPA) 1 2 3 … … n	(1)	Final uses (a) (b) (c) (d) (e) (f)	(3)	(1) + (3)
			(1)	(2)	(3)	(4)	(5)
Products (CPA)	1	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	2	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	3	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	n	(1)	Intermediante consumption at basic prices by product and by product		Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Gross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
(1)	(1)	(2)	Total intermediate consumption at basic prices by product		Final use at basic prices by type		Total use at basic prices
Taxes on products Subsidies on product (-)	Taxes on products Subsidies on product (-)	(3)	Net taxes on products by product		Net taxes on products by type of final use		Total net taxes on products
(1) + (3)	(1) + (3)	(4)	Total intermediate consumption at purchasers' prices by product		Total final uses by type at purchasers' prices		Total net taxes at purchasers' prices
Compensation of employees Other net taxes on production Consumption of fixed capital Operating surplus, net	Compensation of employees Other net taxes on production Consumption of fixed capital Operating surplus, net	(5)	Components of value added by product
(5)	(5)	(6)	Value added by product
(1) + (3) + (5)	(1) + (3) + (5)	(7)	Output at basic prices by product
Imports	Imports	(8)	Imports cif by product
(7) + (8)	(7) + (8)	(9)	Supply at basic prices by product
Fixed capital formation Fixed capital stock Labour inputs	Fixed capital formation Fixed capital stock Labour inputs	(10)

• 9.58. The assumptions used to transfer outputs and associated inputs hinge on two types of technology assumptions:

• (a) industry technology, assuming that all products produced by local KAUs in an industry are produced with the same input structure;

• (b) product technology, assuming that all products in a product group have the same input structure, whichever industry produces them.

The choice of the best assumption to apply in each case is not an easy one. It must, in fact, depend on the structure of national industries, e.g. the degree of specialization, and on the homogeneity of the national technologies used to produce products within the same product group. For example, boots may be made from leather and from plastic. Assuming the same product technology for all boots (or, when a higher level of aggregation is used, e.g. footwear) can thus be problematic; assuming industry technology can then be a better alternative.

Simple application of the product technology assumption has often shown results that are unacceptable, insofar as the input-output coefficients sometimes generated are improbable or even impossible, for example, negative coefficients. Improbable coefficients may be due to errors in measurement and to heterogeneity (product-mix) in the industry of which the transferred product is the principal product. This might be overcome by making adjustments based on supplementary information or exploiting informed judgment to the fullest extent possible. Of course, another solution is to apply the alternative assumption of industry technology. In practice, employing mixed technology assumptions combined with supplementary information is the best strategy for compiling symmetric input-output tables.

• 9.59. The importance of the role played by the assumptions depends on the extent of secondary production, which in turn depends not only on how production is organized in the economy but also on the product breakdown. The more detailed the product breakdown, the more secondary output can be expected.

• 9.60. Step (c) involves the aggregation of the products in the new use table to the industries that generate them according to step (a) and this results in a symmetric input-output table with products cross-classified against by-products. While these amendments start from data based on local KAUs, the resulting entries are made to conform to those of ‘homogeneous units of production’.

• 9.61. The classifications in the symmetric input-output table coincide with those in the supply and use tables, as the former is a transformation of the latter (except of course the classification by industry/homogeneous branch).

• 9.62. The symmetric input-output table 9.12 should be accompanied by at least two tables:

• (a) a matrix showing the use of imports; the format of this table is the same as that of the import table supporting the supply and use tables (see table 9.10), except that the product-by-product classification is used;

• (b) a symmetric input-output table for domestic output (table 9.13).

The latter table should be used in calculating the cumulated coefficients, i.e. the Leontief-inverse. In terms of table 9.13, the Leontief-inverse is the inverse of the difference between the identity matrix I and the matrix of technical coefficients obtained from the matrix ((1), (1)). The Leontief-inverse could also have been calculated for domestic output and competitive imports (see paragraph 9.51). It should then be assumed that the competitive imports have been produced in the same way as the competing domestic produce.

Table 9.13 — A symmetric input-output table for domestic output (product by product)

			Products (CPA) 1 2 3 … … n	(1)	Final uses (a) (b) (c) (d) (e) (f)	(3)	(1) + (3)
			(1)	(2)	(3)	(4)	(5)
Products (CPA)	1	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	2	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	3	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	.	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
Products (CPA)	n	(1)	For domestic output: Intermediate consumption at basic prices by product and by product		For domestic output: Final uses at basic prices: Final consumption expenditure: (a) by households (b) by NPISH (c) by government Cross capital formation: (d) gross fixed capital formation and valuables (e) changes in inventories (f) exports
(1)	(1)	(2)	Total intermediate consumption of domestic output at basic prices by product		Final use of domestic output at basic prices		Total domestic output
Use of imported products	Use of imported products	(3)	Total intermediate consumption of imported products by product		Final use of imported products at basic prices		Total imports
Net taxes on products	Net taxes on products	(4)	Net taxes on products for intermediate consumption by product		Net taxes on products for final use		Total net taxes on products
(2) + (3) + (4)	(2) + (3) + (4)	(5)	Total intermediate consumption at purchasers' prices by product		Total final uses by type		Total use
Compensation of employees Other net taxes on production Consumption of fixed capital Operating surplus, net	Compensation of employees Other net taxes on production Consumption of fixed capital Operating surplus, net	(6)	Components of value added by product
6	6	(7)	Value added by product
(1) + (3) + (4) + (6)	(1) + (3) + (4) + (6)	(8)	Output at basic prices by product
Fixed capital formation Fixed capital stock Labour inputs	Fixed capital formation Fixed capital stock Labour inputs	(9)

CHAPTER 10

PRICE AND VOLUME MEASURES

• 10.01. In a system of economic accounts, all the flows and stocks are expressed in monetary units. The monetary unit is the only common denominator which can be used to value the extremely diverse transactions recorded in the accounts and to derive meaningful balancing items.

The problem when using the monetary unit as a measuring unit is that this unit is neither a stable nor an international standard. A major concern in economic analysis is to measure economic growth in volume terms between different periods. It is then necessary to distinguish, in the value changes for certain economic aggregates, the changes arising solely from price changes from the remainder which is called the change in ‘volume’.

Economic analysis is also concerned with comparisons in space, i.e. between different national economies. These focus on international comparisons in volume terms of the level of production and income, but the level of prices is also of interest. It is therefore necessary to factor the differences in value of economic aggregates between pairs or groups of countries into components, which reflect the differences in volume and the differences in price.

• 10.02. When time comparisons of flows and stocks are concerned, equal importance should be attached to the accurate measurement of changes in prices and in volumes. In the short term, observation of price changes is of no less interest than the measurement of the volume of supply and demand. On a longer term basis, the study of economic growth has to take account of movements in the relative prices of the different types of goods and services.

The primary objective is not simply to provide comprehensive measures of changes in prices and volumes for the main aggregates of the system but to assemble a set of interdependent measures which make it possible to carry out systematic and detailed analyses of inflation and economic growth and fluctuations.

• 10.03. The general rule for comparisons in space is that accurate measures must be made for both the volume and the price components of the economic aggregates. As the spread between the Laspeyres and Paasche formulae is often significant in spatial comparisons, the Fisher index formula is the only acceptable one for this purpose.

• 10.04. The economic accounts have the advantage of providing a suitable framework for constructing a system of volume and price indices as well as ensuring the consistency of the statistical data.

The advantages of an accounting approach can be summarized as follows:

• (a) on a conceptual level, the use of an accounting framework covering the entire economic system requires the prices and physical units for the different products and flows in the system to be specified consistently. In a framework of this type it is imperative that, for example, the price and volume concepts for a given group of products should be defined identically in both resources and uses;

• (b) on a statistical level, the use of the economic accounts framework imposes accounting constraints which must be respected at both current and constant prices and will normally require some adjustments to be made to ensure consistency of the price and volume data;

• (c) furthermore, the creation of an integrated system of price and volume indices in the context of a system of economic accounts provides the national accountant with extra checks. Assuming the existence of a balanced system of supply and use tables at current prices, the construction of such balanced tables at constant prices means that a system of implicit price indices can be automatically derived. Examination of the plausibility of these derived indices can lead to revision and correction of the data at constant prices and even, in some cases, of the values at current prices;

• (d) finally, the accounting approach permits the measurement of price and volume changes for certain balancing items in the accounts, the latter being derived by definition from the other elements in the accounts.

• 10.05. Despite the advantages of an integrated system based on the balance, both overall and by industry, of transactions in goods and services, it has to be acknowledged that the price and volume indices thus obtained do not meet all needs or answer all possible questions on the subject of change in prices or volume. Accounting constraints and the choice of price and volume index formulae, although essential for the construction of a coherent system, can sometimes be a hindrance. There is also a need for information for shorter periods such as months or quarters. In these cases, other forms of price and volume indices may prove useful.

SCOPE OF PRICE AND VOLUME INDICES IN THE ACCOUNTS SYSTEM

• 10.06. Among the flows which appear in economic accounts at current prices, there are some (mainly concerning products) where the distinction between changes in price and volume is similar to that made at microeconomic level. For many other flows in the system, the distinction is far less obvious.

In the former case, the flows cover a group of elementary transactions in goods and services, the value of each being equivalent to the product of a number of physical units and their respective unit price. In this case it is sufficient to know the breakdown of the flow in question into elementary transactions in order to determine its average variation in price and volume.

In the latter case, which concerns a number of transactions relating to distribution and financial intermediation as well as to balancing items such as value-added, it is difficult or even impossible to separate directly current values into price and volume components and special solutions have to be adopted.

There is also a need to measure the real purchasing power of a number of aggregates, such as compensation of employees, disposable income of households or national income. This can be done, for example, by deflating them by means of an index of the prices of the goods and services which can be bought with them.

• 10.07. It must be emphasized that the objective and the procedure followed when measuring the real purchasing power are fundamentally different from those followed when deflating goods and services and balancing items. For these an integrated system of price and volume indices can be established, which is useful, among other things, for measuring economic growth. The valuation in real terms of flows of the last type uses price indices of flows other than those considered, which may differ according to the objectives of the analysis: it can only be a convention and cannot be done in a unique way within an integrated system of price and volume indices.

THE INTEGRATED SYSTEM OF PRICE AND VOLUME INDICES

• 10.08. The systematic division of changes in current values into the components ‘changes in price’ and ‘changes in volume’ is restricted to flows representing transactions, recorded in the goods and services accounts (0) and in the production accounts (I); it is carried out both for the data relating to individual industries and for those relating to the total economy. Flows representing balancing items, for example value added, cannot be directly factored into price and volume components; this can only be done indirectly using the relevant flows of transactions.

The use of the accounting framework imposes a double constraint on the calculation of the data:

• (a) the balance of the goods and services account must for any sequence of two years be obtained at both constant and current prices;

• (b) each flow at the level of the total economy must be equal to the sum of the corresponding flows for the various industries.

A third constraint, not inherent in the use of an accounting framework but resulting from a deliberate choice, is that every change in the value of transactions must be attributed either to a change in price or to a change in volume, or to a combination of the two.

If these three requirements are fulfilled, valuation of the goods and services accounts and production accounts at constant prices means that an integrated set of price and volume indices can be obtained.

• 10.09. The items to be considered when constructing such an integrated set are as follows:

Transactions in products	Transactions in products	Transactions in products
Output	P.1
Market output		P.11
Output for own final use		P.12
Other non-market output		P.13
Intermediate consumption	P.2
Final consumption expenditure	P.3
Individual final consumption expenditure		P.31
Collective final consumption expenditure		P.32
Actual final consumption	P.4
Actual final individual consumption		P.41
Actual final collective consumption		P.42
Gross capital formation	P.5
Gross fixed capital formation		P.51
Changes in inventories		P.52
Acquisition less disposals of valuables		P.53
Exports of goods and services	P.6
Exports of goods		P.61
Exports of services		P.62
Imports of goods and services	P.7
Imports of goods		P.71
Imports of services		P.72
Taxes and subsidies on products	Taxes and subsidies on products	Taxes and subsidies on products
Taxes on products, excluding VAT		D.212 and D.214
Subsidies on products		D.31
VAT on products		D.211
Consumption of fixed capital	K.1
Balancing items	Balancing items	Balancing items
Value-added	B.1
Gross domestic product	B.1*g

PRICE AND VOLUME INDICES FOR OTHER AGGREGATES

• 10.10. In addition to the price and volume measures considered above, the following aggregates can also be decomposed into their own price and volume components. The objectives for these measures vary.

Inventories	AN.12
Stock of produced fixed assets	AN.11
Compensation of employees	D.1

Inventories at the beginning and at the end respectively of each period may have to be calculated at constant prices in order to estimate the volume change in inventories during the period.

The stock of produced fixed assets has to be calculated at constant prices to estimate capital output ratios, as well as to obtain a basis for estimating consumption of fixed capital at constant prices.

Compensation of employees has to be calculated at constant prices for purposes of measuring productivity and in some instances also when outputs have been estimated by using constant price data on inputs.

• 10.11. Compensation of employees is an element of income. For the purpose of measuring purchasing power it can be valued in real terms by deflating with an index reflecting the prices of products purchased by employees. Other income elements too, such as disposable income of households and national income, can be measured in real terms in the same general way.

GENERAL PRINCIPLES OF MEASURING PRICE AND VOLUME INDICES

DEFINITION OF PRICES AND VOLUMES OF MARKET PRODUCTS

• 10.12. The creation of an integrated system of price and volume indices is based on the assumption that, at the level of a single homogeneous good or service, value (v) is equal to the price per unit of quantity (p), multiplied by the number of quantity units (q), that is

Image omitted; see official source

• 10.13. | | | | --- | --- | | Definition: | Price is defined as the value of one unit of a product, for which the quantities are perfectly homogeneous not only in a physical sense but also in respect of a number of other characteristics described in paragraph 10.16. To be additive in an economic sense, quantities must be identical and have the same unit price. For each aggregate of transactions in goods and services shown in the accounts, price and quantity measures have to be constructed so that Image omitted; see official source This means that each and every change in the value of a given flow must be attributed either to a price change or to a change in volume or to a combination of the two. |

• 10.14. For transactions in goods it is in many cases easy to define the physical unit involved in the transaction and hence the price per unit. In a number of cases, for example for unique capital goods, it is more difficult and special solutions have to be adopted.

For transactions in services it is frequently more difficult to specify the characteristics which determine the physical units and differences of opinion on the criteria to be used may arise. This may concern important industries such as financial intermediation services, wholesale and retail trade, services to enterprises, education, research and development, health or recreation. In view of the growing importance of the service industries, it is essential to find common solutions to the problem of the choice of physical units, even if they are only conventional ones.

DIFFERENCES IN QUALITY AND DIFFERENCES IN PRICE

• 10.15. The physical and other characteristics to be taken into consideration when identifying products constitute differences in quality and play an important role, while at the same time raising difficult statistical problems.

The fact is that for many goods and services intended for a specific purpose there exist several varieties of differing qualities, each with its own price.

• 10.16. Differences in quality are reflected by the following factors:

• (a) physical characteristics;

• (b) deliveries in different locations;

• (c) deliveries at different times of the day or at different periods of the year;

• (d) differences in conditions of sale or the circumstances or environment in which goods or services are supplied.

With given physical characteristics, the differences in the other factors imply that the physical units are not identical in an economic sense, and that the value differs among the units. These differences in unit values are considered to be differences in volume and not as differences in price.

In reality, the payment made when a good is purchased covers not only the price of a good but also the price of the services associated with the supply of goods. This means that in principle identical goods sold at different prices and in different circumstances should be considered to be different products. This conclusion is explicitly acknowledged in the supply and use tables, where the value of trade and transport margins (which represent the main services associated with the provision of goods) is recorded separately.

• 10.17. Within a given market and in a single period, the coexistence of several unit values can, except in the cases described in paragraph 10.19, be considered as evidence of the existence of quality differences. Accordingly, the various models of cars and even different versions of the same model must be treated as different products: similarly, a distinction must be made between first-class and second-class railway journeys.

For the purposes of calculating price and volume measures, it is necessary to use as detailed a product classification as possible so that each product identified has maximum homogeneity, regardless of the level of detail used in the presentation of results.

• 10.18. The dimension of quality has to be taken into account also when changes over time are to be recorded. The change in quality due, for example, to the modification of the physical characteristics of a product must be considered to be a change in volume and not in price. Also the effects of aggregation have to be considered. Variations in the composition of a flow which imply, for example, a shift in favour of higher average quality have to be recorded as a volume increase and not as a price increase. It follows that for outputs, the effect of shifts between markets with differing prices, for example domestic versus external, or industrial uses versus markets for consumer products, will be treated as changes in volume and not as changes in price. It also follows that a price change for a given flow can occur only as result of changes in prices at the level of individual transactions.

• 10.19. | | | | --- | --- | | Definition: | The existence of observed unit value differences is not to be considered as an indicator of differences in quality when the following circumstances apply, namely lack of information, price discrimination reflecting limitations in freedom of choice and the existence of parallel markets. In these cases, the unit value differences are considered as differences in price. |

• 10.20. Lack of information means that purchasers may not always be properly informed about existing price differences and may therefore inadvertently buy at higher prices. This, or the opposite, may occur also in situations where individual buyers and sellers negotiate or bargain over the price. On the other hand, the difference between the average price of a good purchased in a market or a bazaar, where such bargaining often occurs, and the price of the same good sold in a different type of retail outlet, such as a department store, should normally be treated as reflecting differences in quality due to different sales conditions.

• 10.21. Price discrimination implies that sellers may be in a position to charge different prices to different categories of purchasers for identical goods and services sold under exactly the same circumstances. In these cases, there is no or limited freedom of choice on the part of a purchaser belonging to a special category. The principle adopted is that variations in price are to be regarded as price discrimination when different prices are charged for identical units sold under exactly the same circumstances in a clearly separable market. Price variations due to such discrimination do not constitute differences in volume.

The possibility of the retrading of goods in a given market implies that price discrimination for these types of products in most cases can be assumed to be insignificant. The price differences that may exist for goods can normally be interpreted as due to lack of information or to the existence of parallel markets.

In service industries, for example in transportation, producers may charge lower prices to groups of individuals with typically lower incomes, such as pensioners or students. If these are free to travel at whatever time they choose, this must be treated as a price discrimination. However, if they are charged lower fares on condition that they travel only at certain times, typically off-peak times, they are being offered lower-quality transportation.

• 10.22. Parallel markets may exist for several reasons. Buyers may be unable to buy as much as they would like at a lower price because there is insufficient supply available at that price, and a secondary, parallel market, where higher prices are quoted, may exist. There is also the possibility that a parallel market exists, where sellers can charge lower prices because they can avoid certain taxes. In these cases too, a price variation constitutes a difference in price and not in volume.

• 10.23. A change in the structure of a flow affecting its total value may occur when in the circumstances of lack of information, price discrimination and the existence of parallel markets identical products are sold at different prices.

Suppose that a certain quantity of a particular good or service is sold at a lower price to a particular category of purchaser without any difference whatever in the nature of the good or service offered, location, timing or conditions of sale, or other factors. A subsequent decrease in the proportion sold at the lower price raises the average price paid by purchasers of the good or service. This must be recorded as a price and not a volume increase.

PRINCIPLES FOR NON-MARKET SERVICES

• 10.24. The establishment of a comprehensive system of price and volume indices covering all supply and uses of goods and services encounters a particular difficulty when measuring the output of non-market services. These services differ from market services in that they are not sold at a market price and their value at current prices is calculated by convention as the sum of the costs incurred. These costs are intermediate consumption, compensation of employees, other taxes less subsidies on production and consumption of fixed capital.

• 10.25. In the absence of a unit market price, the change in the ‘unit cost’ of a non-market service can be considered as an approximation of the change in the price. If non-market services are consumed on an individual basis, it is in principle possible to estimate quantities which are homogeneous and which reflect the utilization of these services and apply the unit costs of a base year to obtain data in constant prices. By such type of output-measurement it will be possible to analyse changes in productivity for individual non-market services. For collective services it is generally not possible to establish unit costs and quantities reflecting their utilization. If attempts are made to account for changes in productivity for collective services by indirect methods, users should be made aware of this.

• 10.26. In the context of the economic accounts, it is of prime importance to adopt the principle that the production and consumption of non-market services, like the production and consumption of goods and market services, must be defined in terms of the actual flows of these goods and services and not in terms of final results obtained from their use. As these results depend on several other factors as well, it is not possible to measure, for example, the volume of teaching services by the rise in the level of education, or the volume of health services by the improvement in the health of the population.

PRINCIPLES FOR VALUE-ADDED AND GDP

• 10.27. Value-added, the balancing item in the production account, is the only balancing item to form part of the integrated system of price and volume indices. The very special characteristics of this item must, however, be emphasized, as must the significance of its related volume and price indices.

Unlike the various flows of goods and services, value-added does not represent any single category of transaction. It cannot, therefore, be directly broken down into a price component and a volume component.