Comparison of Government Finance Statistics with BEA's National Account Estimates

By Pamela A. Kelly and Jennifer A. Bennett

Both the Bureau of Economic Analysis (BEA) national accounts and the International Monetary Fund (IMF) Government Finance Statistics Manual 2014 (GFSM 2014) have their foundation in the System of National Accounts (SNA)¹; however, the focus of the government finance statistics (GFS) differs from that of the national accounts and the SNA.

GFSM 2014 provides a conceptual and reporting framework suitable for analyzing and evaluating fiscal policy (including comparisons across countries), specifically as it relates to the government sectors' spending and revenue.² The GFS framework is designed to provide statistics that enable users to study developments in the financial operations and financial position of the government and also to assess the liquidity and sustainability of the public sector.²

In BEA's national accounts, the statistics for the government sector record not only spending, revenue, and net saving, but also measure the production of the government sector.³ Specifically, the measure of government consumption expenditures and gross investment, which includes the concepts of gross output and value added, quantifies the production, investment, and consumption roles of government.

This documentation explores the similarities and differences in terminology, measurement, and concept between government statistics published in accordance with the GFS methodology and the national accounts methodology.

The GFS produced by BEA are derived from the national accounts and the Financial Accounts of the United States.⁴ Annual and quarterly data are presented in three tables: 1) government; 2) federal government; and 3) state and local governments combined. These tables show: 1) government revenue, expense, and transactions in nonfinancial assets and in financial assets and liabilities; and 2) a government balance sheet (net worth table) encompassing stocks of nonfinancial assets and financial assets and liabilities. Table 1 displays the terminology used by the IMF in the GFS tables and the comparable term used in BEA's national accounts for that transaction. Where appropriate, table 1 identifies measurement and conceptual differences between the statistics and refers to additional information about these differences.

Production of government output

GFS transactions differ because certain expenditures in the national accounts reflect costs associated with government production of goods and services. The production account records the activity of producing goods and services as defined within the SNA. Its balancing item, gross value added, is defined as the value of output less the value of intermediate consumption and is a measure of the contribution to GDP made by an individual producer, industry or sector.⁵ GFS does not measure government production. This difference leads to several measurement and presentation differences between GFS and the national accounts related to the input costs of government production: compensation, intermediate goods and services, and consumption of fixed capital.

In the national accounts, government revenue from the sale of goods and services are netted against the expenses to produce government output. This convention is adopted so that GDP is not double-counted; transactions are counted only in the sector for which they represent final demand. For example, goods and services produced by the government sector, but purchased by the household sector, are recorded as personal consumption expenditures, not government consumption expenditures.⁶ Examples of these types of sales include state and local government tuition and hospital charges. In the GFS framework, these revenues are not netted against expense, but instead are included as sales of goods and services within revenues. The GFS generally measure revenue on a gross basis.

Another difference in measurement is associated with the production of nonfinancial assets for the governments' own use. In the national accounts, the measures of compensation, intermediate goods and services, and consumption of fixed capital include the costs of own-account production in order to accurately measure value added and gross output. These costs in aggregate are then subtracted in the derivation of government consumption expenditures. The absence of a production account in the IMF's government finance presentation makes it impossible to show both the cost structure of own account production and its final use. Thus, for example, the compensation of government employees engaged in own account capital formation is directly classified as the acquisition of nonfinancial assets within the IMF framework and not as compensation of employees.⁷

Current and capital transactions

The GFS framework also differs in the way current and capital account transactions are recorded compared with BEA's featured measure of government current receipts and expenditures. According to the SNA, the current accounts record the production of goods and services, the generation of incomes by production, the subsequent distribution and redistribution of incomes among institutional units, and the use of incomes for purposes of consumption or saving.⁸ The SNA also states that the capital account records acquisitions and disposals of non-financial assets as a result of transactions with other units, internal bookkeeping transactions linked to production (such as changes in inventories and consumption of fixed capital) and the redistribution of wealth by means of capital transfers.⁹ GFS records all transactions by type, whether current or capital in nature, as either revenue, expense, or net acquisition of nonfinancial assets, because this framework is designed to provide statistics that enable users to study developments in the financial operations and financial position of the government and its liquidity and sustainability.

The national accounts do not display aggregates of current and capital transactions by type. The national accounts consider estate and gift taxes and capital grants for investment to fit within the SNA definition of capital account transactions and excludes them from the measurement of current receipts and expenditures. These items are included in the computation of total receipts and expenditures. By combining current and capital transactions in the national accounts, total receipts, total expenditures and net lending and net borrowing are derived that can be similarly compared to the major aggregates in GFS.

Financial intermediation services indirectly measured (FISIM)

Another distinction between the two frameworks is the treatment of government interest flows. In the national accounts, the output of the banking industry is allocated to all sectors of the economy, including government. The financial services provided by the banking industry typically are paid by implicit fees embedded in the interest rates paid to depositors and the interest rates charged to borrowers. These implicit fees, known as financial intermediation services indirectly measured (FISIM), are rerouted from interest transactions to intermediate goods and services purchased. Conversely, the GFS framework does not recognize this imputation, leaving the implicit fees embedded in the interest transactions. Thus, this GFS treatment leads to differences in interest revenue, interest expense, and the use of goods and services compared with transactions shown in BEA's national accounts.

The names of BEA's GFS tables differ from those shown on the IMF website; table 2 compares these table names.