CHAPTER I

CLASSIFICATIONSOFEXPENDITURE ACCORDING TOPURPOSE INTHE1993SYSTEMOFNATIONALACCOUNTS

Introduction

1.The1993SNA1includesfourclassificationsofexpenditureaccordingtopurpose.2 Thesefour classificationsareincludedin thepresentpublicationasfollows:

COFOG:Classification oftheFunctionsofGovernment;

COICOP:Classification ofIndividualConsumptionAccordingtoPurpose;

COPNI:Classification ofthePurposesofNon-ProfitInstitutionsServingHouseholds; COPP: ClassificationoftheOutlaysofProducersAccordingtoPurpose.

2. COFOG,COICOP,COPNIandCOPPhavethreelevelsofdetailwhicharereferredtoasfollows:

01.Division(ortwo-digitlevel);

01.1Group(orthree-digitlevel);

01.1.1Class(orfour-digitlevel).

3. It isattheclassorfour-digitlevelthattheclassificationsarenowdefined.The1993SNA,however, outlinesonlythestructuresoftheclassifications-atthetwo-digitlevelforCOPNIandatthethree-digitlevelfor COFOG,COICOPandCOPP.Thestructuresarebased onpreviousclassifications-namely,theClassification oftheFunctionsofGovernmentpublishedin1980;3 theClassificationofHouseholdGoodsandServicesofthe

1968SNA;4 theClassificationofthePurposesofPrivateNon-ProfitBodiesServingHouseholdsofthe

1968SNA;andtheClassificationofOutlaysofIndustriesbyPurposepublishedindraftin1975.5

4. Thetaskofrestructuringanddefiningtheclassifications wasundertakenbytheOrganisationfor EconomicCooperationandDevelopment(OECD)andtheUnitedNationsStatisticsDivision. OECD,working inclose collaborationwiththeStatisticalOfficeoftheEuropean Communities(Eurostat), wasresponsiblefor COFOG,COICOPandCOPNI.TheUnitedNationsStatisticsDivisionwasresponsibleforCOPP.Thedetails ofCOFOG,COICOP,COPNIandCOPParepresentedinpartstwothroughfiveofthepresentpublication.

1 CommissionoftheEuropeanCommunities,InternationalMonetaryFund,OrganisationforEconomic Co-operationand Development,UnitedNationsandWorldBank,SystemofNationalAccounts1993(United Nationspublication,SalesNo. E.94.XVII.4).

2 The1993SNAusedthetermfunctionalclassifications. TheStatisticalCommissionatitstwenty-eighthsession

recommendedthatinfuturefunctionalclassificationsshouldbereferredtoasclassificationsofexpenditureaccordingto purpose.

3 Classification of theFunctions of Government,StatisticalPapers,No.70(UnitedNationspublication,SalesNo.

E.80.XVII.17).

4A SystemofNationalAccounts,StudiesinMethods,No.2,Rev.3(UnitedNationspublication,SalesNo.E.69.XVII.3).

5DraftClassificationofOutlaysofIndustriesbyPurpose(COIP)(ST/ESA/STAT/83),3 November1975.

Purposeandfunction

5. Theterms “purpose”and“function”areusedinterchangeablyinthe1993SNA;theterm“object”was usedinthe1968SNA. Thethreewordsareallusedtoconveythesamemeaning,thatistosay,the “socio-economicobjectives”thatinstitutionalunitsaimtoachievethroughvariouskindsofoutlays.

6. Thefourclassificationsareprimarilydesignedtoclassifytransactionsundertakenbyhouseholds,non- profitinstitutionsservinghouseholds(NPISHs),governmentandproducersthatresultin“payables”,thatisto say,moneypaidorduefortheacquisitionofcurrentandcapitalgoods oroflabourandotherservices, forthe acquisitionoffinancialassetsorfortheextinctionoffinancialliabilities.Morespecifically:

-COFOGandCOPNIareusedtoclassifyarangeoftransactions,includingoutlaysonfinal consumptionexpenditure,intermediateconsumption,grosscapitalformationandcapitalandcurrent transfers,bygeneralgovernmentandNPISHsrespectively;

-COICOPisusedtoclassifyonlyasinglekindofoutlay,namely,theindividualconsumption expendituresofhouseholds,NPISHsandgeneralgovernment;

-COPPisusedtoclassifyintermediateconsumptionandcapitaloutlaysofmainlynon-financialand financialcorporateenterprises.

7. Thefull definitionsoftheinstitutionalsectorsforwhichtheclassificationsare designedaregivenin chapterIV entitled"Institutionalunitsandsectors"ofthe1993SNAandarenotrepeatedhere.

Usesofclassificationsofexpenditureaccordingtopurpose

8. ChapterXVIIIentitled"Functionalclassifications"ofthe1993SNAdescribesthethreeusesofthese classifications.

9. ThefirstuserelatesspecificallytoCOFOG. Governmentservicescanbenefithouseholdseither individuallyorcollectively. COFOGisusedtodistinguishbetweentheindividualandcollectiveservices providedbygeneralgovernment.Expendituresonindividualservicesaretreatedassocialtransfersinkind.They aredeductedfromthetotalfinalconsumptionexpenditureofgovernmenttoobtainactualfinalconsumptionof government(oractualcollectiveconsumption)andaddedtothefinalconsumptionexpendituresof households andNPISHstoobtainactualfinalconsumptionofhouseholds(oractualindividualconsumption)(seeparas.35 and36below).

10. Theseconduseistoprovideawiderangeofstatisticspertainingtoexpendituresbygovernment, households,NPISHsandproducersthatexperiencehasshowntobeofgeneralinterestandamenabletoa wide varietyofanalyticapplications.Forexample,COFOGshowsgovernmentexpenditureonhealth,education,social protectionandenvironmentalprotectionaswell asonfinancialandfiscal affairs,external affairs,defence and publicorderandsafety;COICOPshowshouseholdexpenditureonfood,clothing,housing,healthandeducation, allofwhichareimportantindicatorsofnationalwelfare;COPPmayprovideinformationonthe outsourcingofbusinessservices,thatistosay,ontheincreasingtendencyforproducerstooutsourcecatering,cleaning, transport,auditingandotherservicesthatwerepreviouslycarriedoutasancillaryactivitieswithintheenterprise.

11. Thethirduseoftheclassifications istoprovideuserswiththemeanstorecastkeyaggregatesofthe

Systemforparticularkindsofanalyses.Forexample:

-Instudiesoflabourproductivity, researchers oftenneedameasureof “humancapital” which is normallyderivedfrominformationonpastexpendituresoneducation.Thefourclassificationsof expenditureaccordingtopurposeidentifyexpendituresoneducationincurredbyhouseholds, NPISHs,governmentandproducers;

-Instudyingtheprocessofeconomicgrowth,researcherssometimesprefertotreatsomeorall researchanddevelopment (RD)expenditures ascapitalformationratherthanasintermediate consumption.COFOG,COPNIandCOPPidentifyRDseparately;

-Instudiesofhouseholdexpenditureandsaving,someresearchershavefounditmoreusefulto regardexpenditures onconsumerdurablesascapitalratherthanascurrentexpenses. COICOP providesfortheseparateidentificationofexpendituresondurablegoods;

-Instudiesoftheimpactofeconomicgrowthontheenvironment,researchersoftenneedinformation onexpenditures undertakentorepairorpreventdamagetotheenvironment. Protectionofthe environmentisidentifiedinCOFOG,COPNIandCOPP.

Purposesincommon

12. Table1.1belowlistssomeofthesocio-economicobjectivesthatarecommontotwoormoreofthefour classifications. An “x”meansthatthepurposeisconsideredrelevanttoagiveninstitutionalsectorandis thereforeidentifiedin theclassificationapplyingtothatsector;ahyphen(-)meanseitherthatthepurposeisnot relevanttothesectorconcernedorthatitisnotidentifiedseparately, becauseinmostcountries thevalueof expenditurescorrespondingtothesecategoriesisbelievedtobequantitativelyinsignificant.

Table1.1.Examplesofpurposesofexpenditurecommontomorethanoneclassification

Purposeof expenditure / Households
(COICOP) / Non-profit institutions serving households (COPNI) / General government (COFOG) / Corporateand unincorporated enterprises (COPP
Health / x / x / x / x
Recreation / x / x / x / x
Culture / x / x / x / x
Education / x / x / x / x
Socialprotection / x / x / x / x
Environmentalprotection / - / x / x / x
Research and development / - / x / x / x
Housing / x / x / x / -
Transport / x / - / x / x
Communication / x / - / x / x
Disaster relief / - / x / x / -
Economic aid abroad / - / x / x / -
Religion / - / x / x / -

13. Thepurposesofexpenditureidentifiedintheseclassificationsarethosethatareregardedasimportant inmostcountriesintheclosingyearsofthetwentiethcentury. Particularcountriesmayputhighpriority on purposes notlistedintable1.1and,astimepasses,somepurposesidentifiedintable1.1may bereplacedby othersthatcannot nowbeforeseen. Theneedtoadapt classificationsofexpenditureaccordingtopurpose to accommodatenationalrequirementsandtorevisethemtomeetchangingcircumstancesiscommontoall internationalclassifications.

Relatedclassifications

14. Thefourclassificationsofexpenditureaccordingtopurposecoveredinthispublicationarerelatedto each other. Theyare alsorelatedto otherinternationalclassificationswhich are listed inthechaptersthat deal specificallywithCOFOG,COICOP,COPNIandCOPP. One internationalclassificationcommontoallthese classifications,butnotmentionedinthosechapters,isthe1997InternationalStandardClassificationofEducation

(ISCED-97).6 However,duringtheconsultationprocess,manycountriesrequestedtheretentionofISCED-767

classEducation notdefinablebylevelandithasthereforebeenretainedin alltheseclassifications.

6 UnitedNationsEducational,ScientificandCulturalOrganization,InternationalStandardClassificationofEducation 1997

(Paris,UNESCO,1997).

7 UnitedNationsEducational,ScientificandCulturalOrganization,InternationalStandardClassificationofEducation(Paris, UNESCO,1976)..

CHAPTER III

CLASSIFICATIONOFINDIVIDUALCONSUMPTION ACCORDING TOPURPOSE(COICOP)

Usesoftheclassification

32. COICOP isanintegral partofthe1993SNA,butitisalsointendedforuseinthreeotherstatistical areas:householdbudgetsurveys,consumerpriceindicesandinternationalcomparisonsofgrossdomesticproduct (GDP)anditscomponentexpenditures.Foralltheseuses,thebasicCOICOPclassificationwillneedtobemade moredetailedbyfurthersubdivisionoftheclasses,butthereareclearadvantages, intermsofcomparability betweencountriesandbetweenstatisticsin thesedifferentareas,ifthebasicstructureofCOICOPis maintained. Itmustberecognized,however,thatCOICOPfollowstheconceptsanddefinitionsofthe1993SNAandthese arenotnecessarilyappropriateforotherapplications.Forexample,inhouseholdbudgetsurveysitisnotpractical toaskhouseholdsforexpenditureoninsuranceservicechargesasrequiredbyCOICOP,andin consumerprice indicessomecountriesmayincludeinterestonhousingloanswhichisexcludedfromCOICOP.

33. ThepurposesdefinedinCOICOParebasedontheclassifications ofconsumerexpenditureswhich nationalstatisticalofficeshavedevelopedfortheirownusetoservea varietyofanalyticapplications.Although COICOPisnotstrictlylinked toanyparticularmodelofconsumerbehaviour, theclassificationisdesignedto broadly reflectdifferencesinincomeelasticities. Forexample,low-income householdsspendrelatively high proportionsoftheirbudgetsonfood,clothingandhousing,whilericherhouseholds spendmoreontransport, education,healthandrecreation.

34. COICOPclassesaredividedinto “services”(S), “non-durables”(ND), “semi-durables”(SD)and “durables”(D). Thissupplementaryclassificationprovidesforotheranalytic applications. Forexample, itis sometimesusefultoestimatethestockof “capitalgoods”heldbyhouseholds;goodsinCOICOPclassesthatare identifiedasdurablesprovidethebasicelementsforsuchestimates.

Individualconsumption

35. COICOPisusedtoidentifyindividualconsumptionexpendituresincurredbythreeinstitutionalsectors: households, non-profitinstitutions servinghouseholds(NPISHs) andgeneralgovernment. Individual consumptionexpenditures arethosethataremadeforthebenefitofindividualpersonsorhouseholds. More specifically:

-Allconsumptionexpendituresbyhouseholdsaredefinedasindividual; COICOPDivisions01 through12 identifythepurposesforwhichtheseexpendituresaremade;

-AllconsumptionexpendituresofNPISHsarealsotreated,byconvention,asbeingforthebenefit ofindividualhouseholds;COICOPDivision13identifiesthepurposesforwhichtheexpenditures ofNPISHsaremade;

-Onlysomeoftheconsumptionexpendituresofgeneralgovernmentaredefinedasindividual.

Expenditures ongeneralpublicservices,defence,publicorderandsafety,economicaffairs, environmentalprotectionandhousingandcommunityamenitiesareconsideredtobeforthebenefit ofthecommunityasawhole rather thanforindividualhouseholds. Theyaretermed “collective

consumptionexpenditures”(or “actualfinalconsumptionofgeneralgovernment”or “actual collectiveconsumption”)andareexcludedfromCOICOP.COICOPDivision14identifiesthose governmentexpendituresthatareregardedasindividualandclassifiesthembypurpose,namely,health,education,socialprotection,recreationandculture.13

36.Inthe1993SNA, the individualconsumptionexpendituresof both NPISHsandgeneralgovernment aretermed “socialtransfersinkind”andareaddedtotheindividualconsumptionexpendituresofhouseholdsto obtainan aggregatecalled “actualfinalconsumptionofhouseholds”(or “actualindividualconsumption”).By bringingtogethertherelevantexpendituresofhouseholds,NPISHsand generalgovernment,COICOPidentifies theexpendituresthatmakeup thisaggregateandclassifiesthemaccordingtothepurposesthattheyaredesigned toachieve.

Links between COICOP, COPNI and COFOG

37. COICOPisessentiallydividedintothreeparts:

Divisions01 to12Individualconsumptionexpenditureofhouseholds

Division13IndividualconsumptionexpenditureofNPISHs

Division14Individualconsumptionexpenditureofgeneralgovernment

38. ThepurposebreakdownswithinDivisions13and14ofCOICOPreplicatethepurposesinthe classificationsforNPISHsandgeneralgovernment,thatistosay,inCOPNIand COFOGrespectively.Thus, oncetheconsumptionexpendituresofNPISHsandgeneralgovernmenthavebeenclassifiedaccordingtoCOPNI andCOFOG,theindividualconsumptionexpendituresinthesetwoclassificationscanbetransferreddirectlyinto Divisions13 and14 ofCOICOP.

PresentationofCOICOPstatistics

39. COICOPisarrangedvertically:firsttheexpendituresofhouseholds,nextthoseofNPISHsandfinally expendituresbygeneralgovernment. Thisisdoneforgreaterconvenienceincompilationofthedata. In presentingstatisticsaccordingtoCOICOP,itmaybemoreinformativetodisplaytheminamatrix,as indicated intable3.1 below. The finalcolumnshowsactualindividualconsumptionbypurposeandcolumns2through

4 showthecontributionstothisaggregatebythethreeinstitutionalsectorsinvolved:households,NPISHsand generalgovernment.

13Paragraph9.87ofthe1993SNAidentifiesexpendituresonpartoftheprovisionofhousing,onpartofthecollectionof householdrefuseandonpartoftheoperationofthetransportsystemasindividual.Therelevantpartsofhousingandtransport areincludedundersocialprotection. Ontheotherhand,thecollectionofhouseholdrefuseisnowtreatedentirelyasa collectiveservice.

Table3.1.SuggestedpresentationofCOICOP statisticsinmatrixformat

PurposeCOICOP:COICOP:COICOP:Actualindividual

households / NPISHs / government / consumption
Foodandnon-alcoholicbeverages / 01 / 01
Alcoholicbeverages,tobacco,etc. / 02 / 02
Clothingand footwear / 03 / 03
Housing,waterand fuel / 04 / 13.1 / 14.1 / 04+ 13.1+ 14.1
Furnishings,householdequipment,etc. / 05 / 05
Health / 06 / 13.2 / 14.2 / 06+ 13.2+ 14.2
Transport / 07 / 07
Communication / 08 / 08
Recreationandculture / 09 / 13.3 / 14.3 / 09+ 13.3+ 14.3
Education / 10 / 13.4 / 14.4 / 10+ 13.4+ 14.4
Restaurantsandhotels / 11 / 11
Socialprotection / 12.4 / 13.5 / 14.5 / 12.4+ 13.5+ 14.5
Miscellaneousgoodsandservices / 12(less12.4) / 12(less12.4)
Otherservices / 13.6 / 13.6
Total

Unitsofclassification

40.ForthehouseholdconsumptionexpendituresinDivisions01 through12,theunitsofclassificationare expendituresfortheacquisitionofconsumptiongoodsandservices.Thebasicdatawillusuallycomefromone ormoreofthefollowingsources:householdexpendituresurveys,statisticsonretailsales,and commodityflow estimateswhichinvolveallocatingthetotalsupplyofgoodsandservicestointermediateandfinaluses.The importantpointtonoteisthat theunitsof classificationare expendituresonspecificgoodsandservices–they arenotexpendituresonpurposesassuch. Divisions01to12ofCOICOPconvertthesebasicstatisticsintoa purposeclassificationbygroupingtogetherthevariousgoods andservicesthat are deemed tofulfilparticular purposes,suchasnourishing thebody,protecting itagainstinclementweather,preventingandcuringillness, acquiringknowledge,travellingfromoneplacetoanother,etc.

41. TheunitsofclassificationforCOICOPDivisions13 and14areexplainedin thechaptersdealingwith

COPNIandCOFOG.

Multi-purposegoodsandservices

42. Themajorityofgoodsandservicescanbeunambiguouslyassignedtoasinglepurpose,butsomegoods andservicescouldplausiblybeassignedtomorethanonepurpose.Examplesincludemotorfuelwhichmaybe usedtopowervehiclesclassifiedastransportaswellasvehiclesclassifiedas recreational,andsnowmobilesand bicycleswhichmaybeboughtfortransportorforrecreation.

43. Thegeneralrulefollowedhasbeentoassignmulti-purpose goodsandservicestothedivisionthat representsthepredominantpurpose. Hence,motorfuelisshownunderTransport. Wherethepredominant purposevariesbetweencountries,multi-purposeitemshavebeenassignedtothedivisionthatrepresentsthemain purposein thecountrieswheretheitemconcernedisparticularlyimportant.Asaresult,snowmobilesandbicycles arebothassignedtoTransportbecausetransportistheirusualfunctionintheregionswheremostofthesedevices

arepurchased,that isto say, NorthAmericaandtheNordiccountriesinthecase ofsnowmobiles,andAfrica, South-EastAsia,ChinaandtheLowCountriesofNorthernEuropein thecaseofbicycles.

44. Examplesofothermulti-purposeitemsinclude:foodconsumedoutsidethehomewhichisshownunder RestaurantsandhotelsnotFoodandnon-alcoholicbeverages;campervanswhichareshownunderRecreation andculturenotTransport; andbasketballshoesandothersportsfootwearsuitableforeverydayorleisurewear whichareshownunderClothingandfootwearnotRecreationandculture.

45. Nationalstatisticiansareencouragedtoreclassifymulti-purposeitemsiftheyconsiderthatanalternative purposeis moreappropriatein theircountry.Suchreclassificationsshouldbefootnoted.

Mixedpurposegoodsandservices

46. Singleoutlaysmaysometimescompriseabundleofgoodsandservicesthatservetwoormoredifferent purposes. Forexample,thepurchaseofanall-inclusivepackagetourwillincludepaymentsfortransport, accommodationandcateringservices,whilethepurchaseofeducationalservicesmayincludepaymentsforhealth care,transport,accommodation,board,educationalmaterials,etc.

47. Outlayscoveringtwoormorepurposesaredealtwithonacase-by-casebasiswiththeaimofobtaining apurposebreakdownthatisaspreciseaspossibleandconsistentwithpracticalconsiderationsofdataavailability. Hence, purchasesfor packageholidaysareshown under Packageholidayswithnoattempttoisolateseparate purposessuchastransport,accommodationandcatering.Paymentsfor educationalservices,ontheotherhand, shouldbeallocatedasfaraspossibletoEducation,Health,Transport,RestaurantsandhotelsandRecreationand culture.

48. Twootherexamplesofmixedpurpose itemsare: thepurchaseofin-patient hospitalserviceswhich include paymentsformedical treatment,accommodationandcatering; andthepurchaseoftransportservices whichincludemealsandaccommodationin theticketprice.Inbothcases,thereisnoattempttoisolateseparate purposes.Purchasesofin-patienthospitalservicesareshownunderHospitalservicesandpurchasesoftransport serviceswithaccommodationandcateringareshownunderTransportservices.

Typeofproduct

49. Mostclassescompriseeithergoodsorservices.ClassescontaininggoodsaredenotedbyND,SDor Dindicating “non-durable”, “semi-durable”or “durable”respectively.Sdenotesclassesconsistingof services. Thedistinctionbetweennon-durablegoodsanddurablegoodsisbasedonwhetherthegoodscanbeusedonly once,orrepeatedlyorcontinuouslyoveraperiodofconsiderablymorethanoneyear(para.9.38ofthe1993SNA). Moreover,durables,suchasmotorcars,refrigerators,washingmachinesandtelevisions,havearelatively highpurchasers’price. Semi-durable goodsdifferfromdurablegoodsinthattheirexpectedlifetimeofuse, thoughmorethanoneyear,isoftensignificantlyshorterandtheirpurchasers priceissubstantiallyless(para.6.93 ofthe1968SNA).

50. Someclassescontainbothgoodsandservicesbecauseitisdifficultforpracticalreasonstobreakthem downintogoodsandservices.SuchclassesareusuallyassignedanS,astheservicecomponentisconsideredto bepredominant.Similarlythereareclassesthatcontaineitherbothnon-durableandsemi-durablegoodsorboth semi-durableanddurablegoods.Again,suchclassesareassignedanND,SDor Daccordingto which typeof goodisconsideredtobethemostimportant.

LinkswiththeCentralProductClassification

51.TheCentralProductClassification(CPC)14 iscloselylinkedwithCOICOPsinceexpenditureson productsarethebasicbuildingblocksofCOICOPclasses.Thus, correspondencescan be establishedbetween categoriesofCPCandCOICOP.

14CentralProductClassification(CPC),Version1.0, StatisticalPapers,No. 77, Ver.1.0 (UnitedNationspublication, SalesNo.E.98.XVII.5).