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CHAPTER 3 NATIONAL ACCOUNTS
This chapter contains national accounts, gross capital stock, prefectural accounts and input-output tables. The sources of these data are "Annual Report on National Accounts", "Gross Capital Stock of Private Enterprises" and "Annual Report on Prefectural Accounts" published by the Economic and Social Research Institute, Cabinet Office, and "Input-Output Tables" by the Director-General for Policy Planning (Statistical Standards), Ministry of Internal Affairs and Communications.
System of National Accounts (Fundamental Statistics)
The System of National Account (SNA) is a system of macro-economic statistics that systematically records the economic conditions of a country. In our country, following the adoption of the 1968 edition of SNA, a system of national account has been compiled systematically and coherently, comprising five separate accounts, namely, the national income account, the input-output table, the flow of funds account which shows the movement of money, the balance of payments statistics which relate to the international trade, and the national balance sheet which describes the national assets and debts. However, a revision of the system of national accounts became necessary to keep up with the changes in social and economic conditions of the country, as the role of governments changed, the share of service industries such as communications and information industries increased, and the financial market became more complex. Therefore, following the revision of SNA in 1993 by the United Nations, several modifications have been made in Japan concerning methods of presentation, nomenclature and concepts of various items, position of Gross Domestic Product (GDP) which is one of the major aggregates, and improvements in consistency among the five accounts mentioned above.
The national income statistics in Japan were officially compiled for the first time in 1928 by the Cabinet Bureau of Statistics as "National Income in 1925", then followed by compilation for 1930 and in 1935 which were the years of the Population Censuses. After the Second World War, the work of the national income statistics was transferred to the Economic Stabilization Board , and in 1953, the then Economic Deliberation Agency (now, the Economic and Social Research Institute, Cabinet Office) published "Report on National Income Statistics of fiscal 1951" which contains consistent national income statistics for the post-war period, and submitted it to the Cabinet Meeting for the first time. Since then, it has been published annually. Later, following the international developments in the method and standard of estimation in the United Nations, OECD and in foreign countries, the national income statistics in Japan underwent several revisions. Finally, comprehensive revisions were made in 1978 and again in 2000 to be fully consistent with the 1968 SNA and 1993 SNA, respectively.
The national account system based on the 1993 SNA is, as was for the 1968 SNA, broadly divided into a flow chapter and a stock chapter, each of which is further grouped into various accounts tables (total and individual), time-series tables and annexes for a clear presentation.
The national accounts are presented by the final report for every calendar and fiscal year and for each quarter, and by prompt quarterly GDP reports (QE) on the gross domestic product (expenditure approach) and the compensation of employees. As the national accounts are based on many kinds of basic statistics, released figures may be revised if any new basic data become available. When a final report is published, old estimates for the preceding years are usually revised. Moreover, when the input-output tables and the population census figures become available every five years, the base year is changed and former estimates are revised retroactively.
Beginning the second preliminary estimates of GDP for July - September 2004 and the annual figures of SNA for fiscal 2003, the chain-linking method is applied to the calculation of real term figures and GDP deflators, changing from the fixed base year method. By the fixed base year method, economic growth rate in real terms may be overestimated for years far from the base year. For example, influence of items whose prices are rapidly going down, such as computers, tend to be overestimated. In order to eliminate such bias, and to reflect current pattern of weights, the chain-linking method is recommended in the 1993 SNA for calculation of deflators and figures in real terms. The chain-linking method is, in short, to set each previous year as the base year, and accumulate the annual changes to calculate the index. It is supposed that such bias is minimized by the chain-linking method, as the method is like revising the index every year.
Accounting system
The integrated accounts are the basic tables to summarize the whole economic circulation of the country, in which the integrated flow account is to record the flow of commodities (goods and services) to illustrate the whole national economic activities in a given period of time. On the other hand, the integrated account of stock shows the amount of assets and liabilities of the whole national economy at a given point of time, and the consistency between flow and stock is maintained by preparing the balance sheet at the opening and the closing of a period as well as the capital finance account, which shows capital trades during the period, and the reconciliation account, which shows revaluations due to price changes.
Accounts tables include, in addition to the integrated accounts, the income and outlay accounts and the capital finance accounts, the closing balance-sheet accounts, and the reconciliation accounts all of which are compiled by institutional sectors. The institutional sector classification is a classification of organisations which are responsible for decision-making on the receipt and disposal of income, the procurement of funds, and the use of assets, and there are such sectors as non-financial corporations, financial corporations, general governments, households (including private unincorporated enterprises), and private non-profit institutions serving households. Moreover, there is the economic sector classification, which classifies bodies responsible for decision-making on the production and the use of goods and services (consumption expenditure and capital formation).
Income and outlay account
In the national account based on the 1993 SNA, the income and outlay account, which shows the distribution of income and the flow of appropriation in five institutional sectors such as non-financial corporations, financial corporations, general governments, households, private non-profit institutions serving households, are recorded in details by dividing into the following four accounts. (See figure 3-2)
- <1> Allocation of primary income account
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The account to record the payables / receivables of property income as well as income that each institutional sector receives as a result of participation in the production process (compensation of employees, mixed income, operating surplus, etc.). Its balancing item is the balance of primary incomes.
- <2> Secondary distribution of income account
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The account to show how the payables / receivables of current transfers other than social transfers in kind result in the disposable income in the institutional sectors based on the balance of primary incomes. The current transfers whose payables / receivables are recorded in this account are "current taxes on income, wealth, etc.", "social contributions", "social benefits, except social transfer in kind" (composed of "social security benefits in cash", "social benefits from pension fund", "unfunded employee social benefits" and "social assistance benefits") and "other current transfers". From these current transfers, "disposable income" is introduced as the balancing item.
- <3> Redistribution of income in kind account
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The account to record the payables / receivables of social transfers in kind consisting of "social security benefits by reimbursement", "other social security benefits in kind" and "transfers of individual non-market goods and services" based on disposable income as a balancing item in secondary distribution of income accounts. "Adjusted disposal income" is introduced as the balancing item.
- <4> Use of income account
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This account consists of a "Use of disposable income account" that is produced from a secondary distribution of income account and a "Use of adjusted disposable income account" that is produced from the payable / receivable in "Redistribution of income in kind account". The former records final consumption expenditure and payables and receivables of "changes in pension reserves in pension funds" and introduces savings based on "disposable income". The latter records actual final consumption and the payables and receivables of "Changes in pension reserves in pension funds" and also records savings based on the "adjusted disposable income".
Reconciliation account
In the national account which conforms to the 1993 SNA, the group of reconciliation accounts, which is to record the changes in assets due to other factors than the trading of assets or monetary transactions, is divided as follows. (See figure 3-3)
- <1> Other changes in volume of assets account
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This account records the quantitative changes of assets that are not recorded in the Capital finance account. Specifically, it records writing-off of bad debt by financial corporations and losses of an unforeseeable amount of assets, such as those caused by disaster. In addition, the depreciation of bad loans by financial institutions is independently presented as "writing-off of bad debt by creditors" because of its high information value.
- <2> Revaluation account
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This account records the revaluation portion of value due to changes in asset prices. Specifically, it records changes in asset value caused by price fluctuations.
The "Others account", which recorded the difference between the consumption of fixed capital estimated from the flow side and that from the stock side in the 1995-base SNA, was abolished for the 2005-base SNA. It is because the consumption of fixed capital at the current prices is now estimated by the Perpetual Inventory Method which conforms to the international standard.
Gross Domestic Product
The gross domestic product (expenditure approach) represents expenditure against the gross domestic product, and grasps, from the side of final demand, the way the goods and services (value added) produced by domestic productive activities are consumed or invested, including international trade. On the other hand, the gross domestic product (production approach) is an aggregate of value added deducting intermediate input such as raw materials, etc. from the output of goods and services attributable to domestic productive activities. Accordingly, the gross domestic product (production approach) and the gross domestic product (expenditure approach) are theoretically equivalent, but they are subject to some discrepancies due to the differences in estimation method and source data, etc. For this reason, an item for statistical discrepancy is included in the gross domestic product (production approach) tabulation in order to adjust the balance between the gross domestic product (expenditure approach) and the gross domestic product (production approach).
The treatment of consumption of fixed capital of general government
In the previous system of national account, the "social capital" such as roads, dams and other government owned assets were treated as non-depreciatory because of the difficulty in measurement. In the new system of national account based on the 1993 SNA, however, the consumption of fixed capital is estimated for the social capital, which has so far been accumulated to a substantial amount, by setting service life and an annual depreciation, just like a private building. The purpose of measuring the consumption of fixed capital for the social capital is not to treat the decreased portion of the social capital as the wearing down to be discarded, but to assume it to be the cost of public services by the governments. The decreased portion of fixed capital is accounted as a part of "government final consumption expenditure", the value of which is measured from the cost of government services (government employees salary, intermediate input, etc.). Thus, this treatment becomes a factor to raise the level of gross domestic product (GDP). When the base year was changed to 2000, the valuation method was also changed from the book value to the market value which is compiled on the basis of time series of nominal estimates of the stock accounts. (See figure 3-4)
Expanded scope of fixed capital formation
In the national account based on the 1993 SNA, the purchase of ordered computer software, which was treated as an intermediate consumption (that is, consumption in the process of production), is included in the gross fixed capital formation (investment). In addition, package-type software was included when the base year was changed to 2000, and in-house-type software was included when the base year was changed to 2005. The "in-house-type software" is software developed in-house for internal use. As it has no market value, it is evaluated on the basis of labour costs of those engaged in the development of the software, etc. By this change, it is believed that the contribution of information technologies industries to the macro economy can be shown more clearly. Incidentally, this change will be a contributing factor to increase the gross domestic product (GDP). (See figure 3-4)
Dual concepts of consumption
In the 1993 SNA, the concept of consumption is defined dually, in order to grasp it from two different viewpoints, namely, "share of burden" and "enjoyment of benefits". The amount of defrayment disbursed in an institutional sector is defined as "final consumption expenditure", and the value of benefits actually enjoyed is defined as "actual final consumption".
More concretely, the "final consumption expenditure" and the "actual final consumption" by the private and government sectors are accounted for as follows: (see figure 3-5)
- Actual final consumption of households is a sum of the final consumption expenditure of households, final consumption expenditure of NPISHs (non-profit private institutions serving households), and the individual consumption expenditure of governments.
- Actual final consumption of governments is the collective consumption expenditure of government.
The adoption of the dual concept of consumption does not affect the size of GDP.
Gross National Income
In the 1993 SNA, the concept of gross national product (GNP) that was used under the 1993 SNA is discarded, and in its place a new concept of gross national income (GNI) has been introduced. The gross national product (GNP) used in the 1968 SNA may be obtained as a sum of the gross domestic product and the net incomes from the rest of the world. However, the character of the gross national product is appropriate for an income measure, and not for a production measure. In the 1993 SNA, a gross national income is redefined to make it clearer that gross national product in the SNA68 is an income measure, and the gross national income is a sum of all the income of each economic group (including income from abroad). Accordingly, the nominal gross national product (based on the 1968 SNA) is identical to the nominal gross national income (based on the 1993 SNA), and the real gross national income (based on the 1993 SNA) is newly adjusted by considering the real value of income caused from the difference of import and export prices (deflator) and by adding the trading gains in order to indicate more precisely the real amount of income received by people in the country.
National Income
Net national income (NNI) at market prices is the balance of deduction of the consumption of fixed capital from the gross national income; and net national income expressed in terms of factor costs is the balance after net indirect tax (tax or subsidies applied to taxes on production and imports) is deducted from the above. This net national income is called the national income (NI) expressed by factor costs. The national income expressed by factor costs is to be distributed as wages and salaries, rent for land and house, interests, dividends and enterprise profits, etc. The income that is grasped from distribution side is called national income (distribution).
At market prices
This represents valuation in prices used in market transactions. This price contains consumption tax and import duty less subsidy.
At factor costs
This represents valuation in terms of the cost of factors necessary to produce the respective goods (this cost comprising the compensation of employees, operating surplus and consumption of fixed capital required for the factors of production). This price does not contain tax or duty imposed nor subsidy.
In the national account, the gross domestic product, the gross domestic expenditure and the national disposable income are expressed at market prices, and the national income is expressed at market prices and at factor costs.
At producer's prices
This represents valuation in prices at the producer's place of business. Therefore, transportation charges and margins from that point to the final place of consumption are deemed to be the production of distribution and commercial agents, and are not added to the value of each commodity. Producer price valuation is used in the input-output table.
At purchaser's prices
This represents valuation at the market price at each stage of purchasing, and includes distribution costs and margins. This type of valuation is therefore used for demand analysis.
Deflator
The deflator is a price index that is used to convert the nominal value into the real value. The process of obtaining areal value by dividing a nominal value by a deflator is called deflation.
Gross Capital Stock of Private Enterprises
Data are based on "Gross Capital Stock of Private Enterprises" estimated annually by the Economic and Social Research Institute, Cabinet Office. As is the case of the national accounts, preliminary estimates are released quarterly in addition to the annual estimates which are released every year.
As regards statistics of tangible capital stock, "National Wealth Survey" is the most representative. In the postwar years, this survey had been conducted four times quinquennially from 1955 to 1970. The private capital stock at the end of the reference year is estimated, using the value of assets obtained from the 1955 and 1970 National Wealth Survey as benchmarks ("two-point" benchmark-year method), by adding investments to, and subtracting asset removals of each year from the value at the end of previous year, and an adjustment is made so that the value for 1970 thus estimated agrees to the value of assets obtained from the 1970 National Wealth Survey.
The estimate covers private incorporated and unincorporated enterprises excluding private non-profit institutions. The assets covered are limited to tangible or intangible fixed assets owned by private enterprises. Houses, which are not directly used for production, are excluded. The value represents gross asset value before depreciation based on the average prices of calendar year 2005, and is presented on the basis of including or excluding Construction in Progress. The basis of including Construction in Progress refers to the investment in completed plant and equipment or those either under construction or being installed (including those recorded in provisional construction accounts). The basis of including Construction in Progress refers to the investment in the plant and equipment either under construction or being installed (including those recorded in provisional construction accounts) as well as the completed ones. The basis of excluding Construction in Progress refers to the investment in the plant and equipment completed or installed (excluding that recorded in provisional construction accounts) only. For unincorporated enterprises, value on the basis of including and excluding Construction in Progress are identical. As for the intangible fixed asset, only the value of computer software is included and estimated by the Perpetual Inventory (PI) Method.
Prefectural Accounts
Prefectural accounts are currently prepared by all the 47 prefectures. It was initiated by a few prefectures who began the work soon after the end of the Second World War, and spread out to other prefectures thereafter. Prefectural accounts are independently compiled by each prefecture, following the "Prefectural Accounts standard methods" which is prepared by the Economic and Social Research Institute, Cabinet Office, in conformity with the national account. The Institute collects all the latest prefectural accounts and edits them to publish the "Annual Report of Prefectural Accounts".
The prefectural account aims to clarify the economic structure and conditions of the prefecture by quantitatively showing such aspects as production, distribution and expenditure, and to utilize it as a synthetic economic measure for the administrative, financial and economic policy making and its implementations in the prefecture. In addition, it makes it possible to ascertain the standing of each prefecture in the national economy, and to compare economies of prefectures, thereby contributing to the regional analysis of national economy and assist regional policy formation and implementation.
The prefectural accounts, which adopt the concepts of the national accounts, should conceptually be consistent with the national accounts, but some discrepancies exist between the two, because the prefectural accounts are compiled by each prefecture independently and the estimation method is not always identical.
Following the change of the basis of the national accounts to the 1993 SNA in 2000, the basis for the prefectural accounts was also shifted to the 1993 SNA in 2002. Then, in 2012, the estimates for 2010 were compiled with the base year changed to 2005. This revision was applied retroactively to fiscal 2001.
Input-Output Tables
The first input-output tables ever compiled in Japan were for 1951. Beginning with the table for 1955, the compilation has been made almost every five years jointly by the ministries and agencies concerned. The latest tables are for 2011, for which the Ministry of Internal Affairs and Communications, the Cabinet Office, the Financial Services Agency, the Ministry of Finance, the Ministry of Education, Culture, Sports, Science and Technology, the Ministry of Health, Labour and Welfare, the Ministry of Agriculture, Forestry and Fisheries, the Ministry of Economy, Trade and Industry, the Ministry of Land, Infrastructure and Transport and the Ministry of the Environment worked together.
The input-output table shows, in a matrix format, inter-industry transactions of goods and services in the national economy for a certain period (usually one year). In the matrix, column figures show the composition of materials and gross value added inputted for production, and row figures the composition of sales and consumptions of goods and services outputted, thus the matrix is called input-output table. In this way, the input-output table consists of the central part which records transactions among industries and extraneous part which shows the gross value added and the final demand. The table is characterized by the clear depiction of all industrial activities including inter-industry transactions which are not shown in the national income statistics.
The main constituent of the input-output tables are the basic transaction table, input coefficient table, and inverse matrix coefficient table. The basic transaction table shows values of goods and services transacted between industries etc., while the input coefficient table is obtained by dividing the value of raw materials inputted etc. of each industry in a column of the basic transaction table by the value of production of the industry, indicating the quantity of raw materials etc. necessary for the production of one unit in each industry. And the inverse matrix coefficient tables show the ripple effect produced directly or indirectly by one unit of final demand in a certain sector on the production of each industrial sector. While the transaction table is by itself able to make clear the structure of industries, the input-output table is widely utilized for making economic forecasts and for economic planning, etc. by input-output analysis using the input coefficient table and the inverse matrix coefficient table.
In the input-output tables for 2011, the transactions between intermediate sectors are expressed as a matrix of 518 rows by 397 columns of sectors. However, presented in this Yearbook are the transaction table and the input coefficient table which are based on the aggregated classification of 37 by 37sectors.
