National And Sector Balance Sheets In Concept And In Practice

National and Sector Balance Sheets are playing an increasingly important role in economic analysis. This article reviews the actual and potential applications and considers whether there is a case for modifying SNA practice and recommendations to increase the value of the contribution that balance sheets can make to analytical work. The major sections of the article relate respectively to financial and non‐financial items in national and sector balance sheets. In the context of financial items, there is discussion of the perception of what constitutes an individual's total financial portfolio and therefore which items should be included or excluded when assessing the financial assets of the household sector (e.g. various forms of pension entitlement and life assurance). The relevance of marketability is considered as is the possibility of attempting to identify a separate domestic households sub‐sector. The other main topic considered in relation to financial balance sheets is the relevance of adopting a single approach to valuation; alternatives are considered in relation to the stock of public sector debt. So far as non‐financial assets are concerned, difficulties arise with the national accounting practice of treating the acquisition of consumer durables and military assets as current expenditure. While it is considered, on balance, best to continue to treat the purchase of consumer durables as current expenditure, though recording the value of the stock of durables outside the main body of balance sheets, it is recommended that “non‐fighting” assets such as transport ships and aircraft and hospitals should be treated as capital assets. The treatment of sub‐soil assets and the valuation of fixed assets is also discussed. Reconciling balance sheets with flows data is an essential step if balance sheets are to be fully exploited; some comments are offered on the UN guidelines on this topic.