Institutional Units and Sectors 15
A government unit may also fi nance a portion of its
activities in a specifi c period by borrowing or by ac-
quiring funds from sources other than compulsory
transfers—for example, interest revenue, incidental
sales of goods and services, or the rent of subsoil as-
sets. All government units are part of the general gov-
ernment sector.
Application of the Defi nition of an Institutional Unit to Government
2.39 Depending on the complexity of a govern-
ment’s organization, the identifi cation of government
units may require careful consideration. Ministries,
departments, agencies, boards, commissions, judicial
authorities, legislative bodies, and other entities that
make up a government are not institutional units if
they do not have the authority to own assets, incur li-
abilities, or engage in transactions in their own right.
In general, all entities funded by appropriations made
in accordance with a budget controlled by the legisla-
ture are not separate institutional units and are treated
as constituting a single institutional unit.
2.40 Th e geographic location of a government
unit is not always limited to one location within the
economic territory—for example, individual minis-
tries or departments of a particular government may
be deliberately dispersed throughout the area of the
government’s jurisdiction. Th ey remain, nevertheless,
part of the same institutional unit. Similarly, a given
ministry or department may maintain branch offi ces
or agencies in many diff erent locations to meet local
needs. Th ese offi ces and agencies are part of the same
institutional unit.
2.41 Th ere may, however, be government entities
with a separate legal identity and substantial auton-
omy, including discretion over the volume and com-
position of their expenditures and a direct source of
revenue, such as earmarked taxes. Such entities are
oft en established to carry out specifi c functions, such
as road construction or the nonmarket production of
health or education services. Th ese entities should be
treated as separate government units (oft en referred to
as extrabudgetary units) if they satisfy the criteria to
be an institutional unit (see paragraphs 2.22 and 2.80).
2.42 Sometimes governments establish legal enti-
ties that cannot act independently and are simply a
passive holder of assets and liabilities. Such an entity
is referred to as an artifi cial subsidiary and is not
treated as a separate institutional unit, unless it is
resident in an economy diff erent from that of its par-
ent unit (see paragraphs 2.6–2.20). Resident artifi cial
subsidiary entities are classifi ed as components of the
level of government that controls them (i.e., as part of
their parent unit or extrabudgetary units of the parent
unit).2.43 Government resident artifi cial subsidiaries
are sometimes set up as SPEs. Although these resi-
dent artifi cial subsidiaries are oft en legally consti-
tuted corporations, to the extent that these entities are
nonmarket producers and are controlled by another
government unit, they should be classifi ed within the
general government sector, either as an extrabudget-
ary government unit, or with the parent government
unit that controls the SPE. Resident SPEs acting in-
dependently, acquiring assets and incurring liabilities
on their own behalf, and accepting the associated risk,
are treated as separate institutional units and are clas-
sifi ed by sector according to their principal activity.
All nonresident SPEs are treated as separate institu-
tional units resident in the economy where they are
established, but the fi scal activities they carry out are
refl ected in the accounts of the government that con-
trols them (see paragraphs 2.136–2.139).2.44 Another example of a resident artifi cial sub-
sidiary is where government establishes a central
borrowing authority that appears to be a public fi -
nancial corporation but is in fact part of a general
government unit. Th ese central borrowing authori-
ties borrow on the market and then lend only to
the parent unit or other general government units.
However, because such entities are not treated as
separate institutional units, and merely facilitate
government borrowing, they should be classifi ed
in general government, either as an extrabudgetary
unit, or with the government unit that controls the
central borrowing authority. Where such a central
borrowing authority is created as a resident in an
economy diff erent from that of its parent, it should
be classifi ed as a captive fi nancial institution (see
paragraphs 2.14 and 2.54) in the fi nancial corpora-
tion sector of the host economy.2.45 An ancillary activity is a supporting activ-
ity providing services within an enterprise in order
to create the conditions within which the principal