24 Government Finance Statistics Manual 2014
the legislature. Most of the ministries, departments,
agencies, boards, commissions, judicial authorities,
legislative bodies, and other entities that make up the
budgetary central government are not separate insti-
tutional units. Th is is because they generally do not
have the authority to own assets, incur liabilities, or
engage in transactions in their own right (see para-
graph 2.42). Th e state or local government subsectors
each have a budgetary state/local government compo-
nent that includes the principal executive, legislative,
and judicial powers for these levels of government.
2.82 General government entities with individual
budgets not fully covered by the main (or general)
budget are considered extrabudgetary.^28 Th ese en-
tities operate under the authority or control of a
central, state, or local government. Extrabudgetary
entities may have their own revenue sources, which
may be supplemented by grants (transfers) from the
general budget or from other sources. Even though
their budgets may be subject to approval by the leg-
islature, similar to that of budgetary accounts, they
have discretion over the volume and composition of
their spending. Such entities may be established to
carry out specifi c government functions, such as road
construction, or the nonmarket production of health
or education services. Budgetary arrangements vary
widely across countries, and various terms are used to
describe these entities, but they are oft en referred to
as “extrabudgetary funds” or “decentralized agencies.”
2.83 Nonmarket NPIs controlled by government
are typically classifi ed as extrabudgetary units when
they satisfy the criteria to be an institutional unit.
More specifi cally, they are classifi ed with the level
of government that controls them—namely, central,
state, or local governments. Th e most important and
likely factors to consider in determining government
control of NPIs are discussed in Box 2.1. All NPIs allo-
cated to the general government sector should retain
their identity as NPIs in statistical records, to facilitate
the analysis of a complete set of NPIs.
2.84 Th e following sections further defi ne the
subsectors of government. Th ese defi nitions apply
whether social security funds are included with the(^28) Th ese entities are institutional units if they satisfy the criteria to
be a separate institutional unit (see paragraph 2.22). If an entity
does not qualify as a unit, it is considered as part of the unit that
controls it.
level of government that organizes and manages them,
or as a separate subsector of general government.
Central government
2.85 Th e central government subsector consists
of the institutional unit(s) of the central government
plus those nonmarket NPIs that are controlled by the
central government. Th e political authority of the
central government extends over the entire territory
of the country. Central government has, therefore, the
authority to impose taxes on all resident institutional
units and on nonresident units engaged in economic
activities within the country. Its political responsibili-
ties include national defense, the maintenance of law
and order, and relations with foreign governments. It
also seeks to ensure the effi cient working of the social
and economic system by means of appropriate legisla-
tion and/or regulation. It is responsible for providing
collective services for the benefi t of the community
as a whole, and for this purpose incurs expenditure
on defense, public administration, etc. In addition, it
may incur expenditure on the provision of services,
such as education or health, primarily for the benefi t
of individual households, and it may make transfers
to other institutional units, including other levels of
government.2.86 Compiling statistics for the central govern-
ment is particularly important because of the spe-
cial impact it has on monetary policy and economic
growth. For example, it is mainly through central gov-
ernment fi nances that fi scal policy impacts on infl a-
tionary or defl ationary pressures within the economy.
It is generally at the central government level alone
that a decision-making body can formulate and carry
out public policies directed toward nationwide eco-
nomic objectives. Other levels of government have
neither national economic policies as their objective
nor the central government’s access to central bank
credit.2.87 In most countries, central government is a
large and complex subsector. Nonetheless, as de-
scribed in paragraph 2.80, based on administrative ar-
rangements in a country, it is generally composed of a
budgetary central government, extrabudgetary units,
and social security funds (unless a separate subsec-
tor is used for social security funds, as described in