Differences between the French and the UN national accounting systems

This paper is prepared for the Bank's internal use and is not for publication. The views are those of the author and not necessarily those of the Bank. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTE:RNATIONAL DEVELOPMENT ASSOCIATION Economiics Departnment Worki.ng Paper No. 84. DIFFERENCES BETWEEN THE FRENCH AND THE UN NATIONAL ACCOUNTING SYSTEMS July 28, 1970 Yves Franchet Comparative Data Unit  DIFFERENCES BETWhEEN THE FRENCH AND THE UN NATIONAL ACCOUNTING SYSTEMS I. Introduction A mmber of developing countries- prepare their national accounts estimates following the French system of national account- ing. This system differs from the UN system./2 This note describes the differences and how they can be reconciled. II. Differences between the two systems These differences lie in the definition of production, in the classification of transactions, and in their valuation. 1. Definition of production In both systems, production is defined as that part of hu-nan activity which leads to the creation of goods and services. In the French system, services are only those which can be exchanged on the market. In the UN system, the definition of productive services is less restrictive. The services included in this system and not in the French system are (a) services provided by goverrnment agencies (b) services provided by private non-profit institutions These institutions are defined in the French system as the private institutions which receive payments not related to the cervices they provide. They include private schools, professional institutions, religious communities, and other insti.tutions such as club, cultural centers, welfare foundations. But they do not include private institutions such as hospitals, because their receipts are linked to the services they provide. These institutions are included in the sector "enterprises" of the French system. (c) services provided by financial institutions These institutions are the Banking System, the specialized public financial institutions, and the insurance companies. 'Ihey do not include holding I am grateful to Mr. E. Levy for his most useful comments and suggestions. /1 See the list of Annex 1. /2 The comparisons included in this note relate to the UN system of national accounts described in Annex 2, document 3.  -2- companies,, included. in the sector "enterprises" of the French system. (d.) services provided by households salaried employees (e) services provided by the Nationa LLotterlr (f) net royalties from patents and copyrights from abroad., 2. ClassificatiorL of the transactions Both systems classify economic transactions follow-ing the sectors of the economy or the- typee of activity., B3it there e dffer- ences. inside these classifLications. A. Seroftheeono" UN s tem e gt 1. enterprises 1. non-financial enterprises 2, households and private 2. households non-profit institution.s 3. govenmment and private, 3-.. government non-profit institutions (in Fren.ch "adminis'trations") 4. financial institutions Dn. the Frenchi system., the sector "enterprisesll' is broken down intao non-financial enterprises and financial institutions. Private non-profit inetitutions are included with govemment in the French. seator "administrations." A "rest-of-the world" sector is described as a whole in both systems. B.. TMe' of' activity a, both systems the different. types of activity of each sector are described in specific accounts, which are: UN, sstem French system. 1.. Production account l. Pr'oduction account 2. Appropriation account 2 . Operating accouint 3. CGapital reconciliation. account 3. Appropriation account 4. Capital acoount 5. Financial account The activities described in the UN system through the two production and appropriation accounts are the same as those des- cribed through the three production, operating and. appropriation accounts in the French system./l The French "prodicticn. accountt" describes only the formation. of value added. Total output, is, the' resource of this account. Intermediate consumption and value added are its' uses. & Siee documents of Amnex 2.  3 The French "operating account" is included in the UN "produc- tion account." The two "appropriation accounts" are similar. There is nothing in the UN system which corresponds to the French "financial account" that describes the changes in financial assets and liabilities of each sector./l T'he French national accounting system describes the production process and tne financial operations in more detail. Two basic tables are included on these subjects:/2 (a) An input-output table It describes the intermediate consumption of the output of each commodity by each part of the productive sector, called in French "branche. "/3 (b) A financial operation table It describes the equilibrium between the physical and the financial aspects of economic transactions. It summarizes the financial accounts of the different sectors. 3. Valuation of the transactions Production in the UN system is generally valued at prices received by the producers. Therefore, prices of non-marketed goods or services/4/5 are those at which producers of similar prodicts sell in the same neigh- bouring localities. The French system, similarly, values production at producer prices, except for non-marketed goods and services, which are valued at consumer retail prices in the foeighbouring localities. These prices differ by the amount of trade margins from the producer selling prices used in the UN sys tem. /1 'The capital finance account of the new UN system includes the Frenich "Ifxianciala account. " See Annex 2, document (4) . /2 These tables are included in the new UN system; see Aznnex 2, document (4). /3 A "branche"l is the aggregation of economic units or parts of eco- nomic units which produce the same type of commodity. There is a one-to-one correspondence between commodities and "branches." /4 e.g. non-marketed consumer goods and services not included in the French definition of production. /5 e.g. farmers' home consumption.  III. Reconciliation between the two systems 14. A. From the French gross domestic produiction to GDP at market prices Value added by the services described in paragraph 1 has to be added to gross domestic production to arrive at GDP at market prices. (a) Value added b the financial institutions5 i) Bankinig system, specialized financial institutions and life insurance coimpanies Charges acttually paid to these institutions account for a small part of their income. If their value added was computed as that of the other enterprises, it would therefore be negative. The UTN system avoids this anomaly'by imputing a service charge in addition to the charges actually paid. There- fore, value added by these -institutions is equal to interests rereived less interests paid (e.g. service charge) less current nonfactor inputs./2 ii) Other insurance companies Value added by insurance companies is equal to premiums received less claims paid (e.g. service charge) less current nonfactor inputs. (b) Value added by government services is the sum of salaries and supplementary payments, including social security con- tributions paid in behalf of government employees, and of the rentsimputedto the government for its buildings. (c) Value added by households and private-non-profit insti- tutions is the sum of salaries, social security contri- brtions and social benefits paid to or for their employees. (d) Value added by the National Lottery is the difference between its net receipts and current non-factor inputs. /1 See document (4t). 72 This treatment abusively inflates value added by enterprises. The service charge imputed to enterprises should be considered as inter- mediate consumption and deducted from value added. Annex 3 is an example of what should be done. However, most of tIh countries follo'wing the UN national accounts system do not make this minor correction.  5 Net royalties from patents and copyrigts are added to gross domestic production. Last, the amount of trade margins on non-marketed consumption are deducted from gross domestic production./l An example of a reconciliation is attached in Annex 3 based on the national accounts of France in 1965./2 W. B. Changes in the standard tables B1. Industrial origin of GDP To prepare the UN standard table from the French one it is necessary tos 1. deduct from the agricultural sector the amount of trade margins on non-marketed consumption 2. add to the sector "government services" the value added by these services 3. add to the sector "financial services" the value added by these services 4. add to the sector "other services" (1) the value added by the salaried employees of household and private non-profit institutions, by the Lottery, and (2) net royalties from patents and copyrights. B2. Expenditure on GNP To transform the French table into the UN table, it is necessary to: 1. Add to public consumption the value added by govern- ment services and by the National Lottery and the part of valuae added by Epblic firiancial institutions not yet included. 2. Add to private consumption (a) the value added by employees of households and private non-profit institutions, (b) net royalties from patents and copyrights, (c) the part of value added by private financial institutions not yet included, and (d) deduct the amount of trade margins on non- marketed consumption. /1 See paragraph 4. 75 There is a discrepancy between this example and the theoretical frame. It is that government and private non-profit institutions accounts are mixed in the sector "administrations." Value added of non-profit institutions had to be deducted from that sector and ilxcluded with households.  -6- 3. Add the net factor income from abroad. An example of a reconciliation is given in Annex 4, based on the national accounts of k.;lz