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Public Sector Account Methods

This page provides general documentation of the methods for constructing Public National Transfer Flow Account.

• Public Sector Update
• Public Sector Summary
• Public Transfer Flow Account
• Overview
• Public Sector Budget Identity
• Sub-Sectors
• Data Sources
• Other content?
• Public Sector Aggregate Controls
• Public Asset-based Reallocations
• Public Transfers
• Public Investment
• Consumption
• Transfers

Public Sector Update

Overview

In National Transfer Accounts the public sector is an intermediary that compels reallocations across age groups and time. As with the private sector, public reallocations can be in the form of asset reallocations and in the form of transfers. The public sector includes the transactions of general government, including the central, state or regional, and local government entities.

The public sector creates asset reallocations in two important ways - by investing in public capital and by creating public credit. When the government invests in public capital - building a school, for example - current production is used to create a flow of services in the future. Resources are also shifted across age groups to the extent that the beneficiaries of the investment differ from the taxpayers who funded the public investment.

The government engages in public credit transactions when it borrows and lends funds to investors. These transactions reallocate resources because programs funded through deficit financing provide goods, services, and/or cash to beneficiaries by obligating current and future taxpayers who must pay interest on the public debt and/or repay the public debt.

Public transfers encompass all goods and services and all cash transfers provided to individuals. Age reallocations occur to the extent that the beneficiaries of such programs belong to different age groups than the taxpayers who fund them.

Governments engage in some activities that are not relevant to National Transfer Accounts: services provided for a fee to consumers or to businesses; regulatory activities; the operation of state owned enterprise; others? Any surplus generated by these and similar activities is treated as a tax.

Public Sector Budget Identity

Public sector transactions are governed by a budget identity. Outflows consist of the sum of in-kind transfers, cash transfers, investment, and interest payments on public debt. Inflows consist of taxes. The budget deficit is the balancing item.

Sub-Sectors

Data Sources

Other content?

Public Sector Aggregate Controls

Public Asset-based Reallocations

Under revisions. See Revised Public AR.

For previous version, see Method Archives.

Public Transfers

Individuals may make and receive transfers to one other through the public sector, which is called public transfers.

Here is a list of taxes and other government revenue. This list follows the Government Finance Statistics (GFS) to show how people finance public transfer outflows through the public sector. There are four major sources of revenue: Taxes, Social Contributions, Grants and Other Revenue. Taxes

Public Investment

Consumption

The flow of services from public capital is a component of total public consumption. In theory, the flow of services is equal to depreciation plus the net return from public capital,

     CGK(a,t) - consumption of government capital by age group a in year t
     r - rate of return to government capital
      - depreciation rate

In practice, National Income and Product Accounts assume that the net rate of return to public capital is zero. If this practice is followed, r is equal to zero and consumption is equal to depreciation.

Transfers

The age profile of taxpayers who finance public investment is different than the age profile of the beneficiaries of that investment. The beneficiaries are by assumption the "owners" of the capital. Thus, investment in public capital is accompanied by transfers from taxpayers to beneficiaries in essentially the same way as other public programs.

The transfer inflows are equal to the gross investment by each age group while the transfer outflows are equal to taxes paid for that investment; net transfers are the difference between inflows and outflows:

     where  - tax share of age group a

Additional details are available in Public Sector

Author:  A Mason
Last Revised:  August 10, 2005

Comments about the Public Investment methodology: