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Chapter 3 National Accounts
This chapter covers the System of National Accounts and related statistics. The System of National Accounts (hereinafter referred to as SNA) is a comprehensive system that describes an overall picture of the economy of a nation based on the international standards and concepts recommended by the United Nations. It not only sheds light on the macro-economic circulation of products, income, distribution and expenditure but also provides structural information that characterizes a national economy. It also makes it possible to understand the relationship between the stock and flow. On the other hand, its compilation requires a massive number of basic statistics, and so, it plays an important role in providing systematic guidelines for the development and improvement of such statistics.
In Japan, the accounts were compiled several times before World War II, the first being for the year 1925. After World War II (1945), the emphasis is laid on the structural cycle of the economy rather than the total amount of national income. In 1953, it was reported in the Cabinet Meeting as the "National Income Report of 1951." Since then, the Economic Research Institute of the Economic Planning Agency (currently, the Economic and Social Research Institute of the Cabinet Office) issues the report every year.
In response to the revisions in the international standards of SNA, the Japanese government carried out three major revisions. The first revision was made in 1966 to meet the requirements of a System of National Accounts and Supporting Tables of 1953 (53SNA). In the same year, the government published national accounts based on the 53SNA retroactively to the year 1951.
The second revision was made in response to the revision of the international standards decided in 1968. The UN Statistical commission revised the 53SNA extensively into the System of National Accounts of 1968 (68SNA). Consequently, in 1978 the Japanese government shifted its system completely to the 68SNA. In the 68SNA, five economic accounts were consolidated: national income accounts, input-output table, flow of funds accounts, national balance sheet and balance of international payments.
The third revision was effected on the basis of the System of National Accounts 1993 (93SNA), in which the 68SNA was extensively revised through the recommendations of five international organizations including the United Nations in 1993. Its purpose was threefold: to meet structural changes in the economy, to elucidate further various concepts and to improve consistency with other statistical systems.
In 2000 the 93SNA was implemented in Japan, and the figures were revised retroactively to 1990, whereas main accounts pertaining to expenditure were retroactively to 1980.
- System of flow and stock
93SNA consists of the following five basic accounts as with the 68SNA.  National income accounts - They constitute SNA in its narrow definition. The accounts contain gross domestic product (GDP), national income, income and outlay accounts and capital finance accounts.  Input-Output table - It shows the composition of production costs and the disposal of goods and services by economic activity (such as the industrial sector and government)  International balance of payments - It pertains to the transactions of goods and services and the receipts, payments and transfers of income with overseas countries.  Flow of funds accounts - The above three accounts are related to the transactions of goods and services (transactions in kind). On the other hand, these accounts are about the flow of funds behind transactions in kind or financial transactions independent of transactions in kind (such as stock purchase by borrowing).  National balance sheet - The above four accounts describe flows, whereas this account is related to stocks that remain as a result of flow transactions or as a result of fluctuations in asset prices. It is a balance sheet of financial assets and liabilities and at the same time assesses the values of productive assets such as houses, buildings, machinery/equipment and social capital and the values of tangible assets such as land and forest.
- System of accounts
In the national income accounts, which form the core of the SNA, the integrated accounts of the national economy are stated first to related the gross domestic product and the gross domestic expenditure, which is the final form of spending of gross domestic product. The transactions of income with overseas countries are added to or subtracted from the income generated from national gross product to obtain net national disposable income, which is the source of final spending and saving of the nation. The latter two accounts of the above three integrated accounts are shown as income and expenditure accounts and capital finance accounts by institutional sectors as well.
- Gross national product and gross expenditure
In input-output table, the vertical column indicates the components of production costs. The top left part of the table is called "intermediate input," which indicates the values of raw materials and parts used during the process of production. The amount obtained by subtracting the total amount of intermediate input from the amount of domestic product, which is the worth of products, is referred to as gross value added. Its total amount is the gross domestic product. The gross value-added consists of the earnings of employees (which are called compensation of employees in the SNA), operating surplus (which is equivalent to operating surplus and mixed income in the SNA), capital depreciation allowance (which is called consumption of fixed capital in the SNA), indirect taxes and subsidies.
On the other hand, the horizontal row of the input-output table shows how each product is used. The total amount of the used is shown again as the amount of domestic product. Consequently, the total amount of the items of final demand from private final spending to imports (deduction) is equal to the difference between domestic product and intermediate input as in gross domestic product. The sum of the items of final demand is called "gross domestic expenditure" (GDE). Its amount is identical with GDP.
- Gross national income
Gross domestic product (GDP) indicates the final results of domestic economic activities. With respect to the income of the residents of a country, it also includes property income such as interest and dividends derived from assets possessed abroad and receipts and payments such as the compensation of employees earned abroad. Until 68SNA, GDP added by net receipts of such incomes from abroad was called gross national product (GNP). However, it was decided to call it gross national income (GNI) in 93SNA.
In 1947, the Kagoshima prefectural government compiled and reported the income of prefectural residents for the first time in Japan. Subsequently, the practice spread to other prefectures. The Economic Planning Agency prepared the "standard system of prefectural income" in 1956, thereby making it possible to make comparisons among prefectures. At present, the governments of all prefectures and the designated cities compile their economic accounts in accordance with the 93SNA. The Economic and Social Research Institute of the Cabinet Office collect gross prefectural product by economic activity, prefectural income, gross prefectural expenditure and its main components, and real economic growth rate for each prefecture and the designated city and publishes the results as the "Annual Report on Prefectural Accounts."
The 1951 table was the first input-output table of Japan. Since 1955, the Ministry of Internal Affairs and Communications and ten ministries and agencies jointly compiled the national table every five years. At present, after the reorganization of ministries and agencies, ten offices, ministries and agencies work together to draw up the table. The 1995 table was compiled based on the basic classification consisting of 519 rows and 403 columns.
Domestic and National --- "Domestic" signifies territory. Territory denotes the national land of a country including the total area of its diplomatic establishments abroad and excluding the total area of foreign diplomatic establishments and foreign country's forces stationed within the country. "National" is a concept that refers to the residents of a nation. A resident is a person who lives in the country for a period of one year or more regardless of his/her nationality. A juridical person or corporation that has been founded in the country is also a resident.
Classification of economic activities --- This classification is based on the physical unit of production of goods and services. Therefore, technically homogeneous business entities such as establishments are taken as one classification unit and one statistical unit. Economic activities are broadly classified into "industry," "governmental service producer" and "private non-profit service producer for households." Each category is then subdivided.
Classification of institutional sectors --- This classification is based on the type of entity that makes decisions concerning the receipt and disposal of income and the possession and operation of assets. This classification is used in the income and expenditure accounts, the capital finance accounts and the national balance sheet accounts. The entity involved in transactions is classified into five categories: "non-financial corporations," "financial corporations," "general government," "households" and "private non-profit institutions serving households."
At market price and at factor cost --- "At market price" is a method evaluated by the price used in market transactions. The producers' price is used at the stage of production and the purchasers' price is used in other stages of transactions. "At factor cost" is a method evaluated by the cost paid for production factors required for the production of each commodity (compensation of employees, business surplus and mixed income and consumption of fixed capital). It is equal to the amount after deduction of taxes (deduction subsidies) imposed on the produced and imported goods from the market price.
Social contributions and benefits --- Social benefits include social security payments in cash such as old-age pension, social benefit in cash from pension funds etc., social support benefit such as livelihood assistance, non-fund employee's social benefit such as retirement allowance and social transfers in kind such as medical insurance. Social contributions are obligations for the systems to provide social benefits. They include the employer's compulsory social contributions to the social security fund, the employer's compulsory actual social contributions, the employer's voluntary actual social contributions to the pension fund, the employer's voluntary social contributions and imputed social contributions that are an allotment to the non-fund system.
Intangible non-productive asset --- This is an intangible asset that is not related with liabilities. It refers to patent, utility model patent, copyright, trademark right and design right in the balance sheet. These rights are hard to evaluate. As a result, only the patents etc. that private corporations purchase are included, aside from recording the balance in the national asset ledger about public corporations and general governments. They are written in the margin of the balance sheet.