Economic Flows, Stock Positions, and Accounting Rules 63
sector units—for example, consolidation between cen-
tral, state, and local governments, and between general
government and public nonfi nancial corporations.
3.157 Intrasectoral consolidation is always done
before intersectoral consolidation—for example,
where more than one central government social se-
curity fund exists, the data for all social security funds
should be consolidated before the consolidated social
security data is presented as a subsector of the central
government. Subsequently, data for all the subsectors
of the central government will be subject to intersec-
toral consolidation to produce data for the consoli-
dated central government.
Reasons for consolidation
3.158 Th e main reason for consolidation lies in the
analytical usefulness of the consolidated statistics: con-
solidation eliminates the distorting eff ects on aggre-
gates of diff ering administrative arrangements across
countries or over time. Th e main impact of consolida-
tion on the statistics is on the magnitude of aggregates.
To relate government aggregates to the economy as
a whole (e.g., revenue, expense, or debt to gross do-
mestic product (GDP) ratios), it is better to eliminate
the internal movement of economic value and include
only those fl ows and stock positions that actually cross
the boundaries with other sectors or nonresidents. Th e
same arguments apply to why public corporations and
public sector statistics should be consolidated.
3.159 By eliminating all reciprocal fl ows and stock
positions among the units being consolidated, con-
solidation has the eff ect of measuring only fl ows or
stocks of the consolidated units versus units outside
the boundary. Consolidation excludes the economic
interaction within the grouping of institutional units,
and presents only those fl ows or stocks that involve
interactions with all other institutional units in the
economy, and the rest of the world.
3.160 Consolidation avoids double-counting of
fl ows or stock positions among a grouping of insti-
tutional units, thus producing statistics that exclude
these internal fl ows or stock positions. It is the avoid-
ance of double-counting that produces the increased
analytical usefulness of consolidated statistics in cases
where it makes sense to view the consolidated group
as acting as if it were a single entity.
Conceptual guidelines
3.161 Conceptually, consolidation entails the elim-
ination of all intra- and intergovernmental fl ows and
all debtor-creditor relationships among the units or
entities that are combined. Consolidation requires a
review of the accounts to be consolidated to identify
inter- and intrasectoral fl ows and stock positions. Th e
goal is to eliminate, in a consistent manner, fl ows and
stock positions that will have a signifi cant eff ect on the
fi nal derived measures. However, two types of trans-
actions that appear to take place between two govern-
ment units are never consolidated because they are
rerouted in GFS (see paragraph 3.28):- Employer social contributions, whether paid to
social security or government pension funds, are
treated as being payable to the employee in the
household sector as part of compensation and
then payable by the employee to the social secu-
rity scheme. - Taxes withheld by government units from the
compensation of their employees, such as pay-
as-you-earn taxes, and paid to other government
units should be treated as being paid directly by
the employees. Th e government employer is sim-
ply the collecting agent for another government
unit, and is acting on behalf of the employees in
the household sector.
3.162 Consolidation covers a range of categories of
fl ows that may vary greatly in importance. Th e major
transactions, in likely order of importance, cover: - Grants (current and capital) among general gov-
ernment units or entities - Interest income/expense
- Taxes paid by one government unit or entity to
another (except those taxes withheld on behalf of
the household sector) - Purchases/sales of goods and services
- Acquisitions/disposals of nonfi nancial assets.
3.163 Th e following major transactions, other eco-
nomic fl ows, and stock positions in fi nancial assets
and liabilities, in likely order of importance, should
be consolidated: - Loans
- Debt securities
- Other accounts receivable/payable.