**2. The SAM framework**

thus think about the existence of a transaction of economic value, whose measurement is 'a

The abovementioned (re)organisation of the activity of society also involves transfers, which are also flows, but with different characteristics from those associated with market transactions. Taxes, remittances, property income, social security system, and so on, are all the examples of these flows, which are nonreturn flows in a strict sense, but which balance at a macroeconomic level. When this facet is also considered, from the author's point of view, the

Interest in the measurement of these flows has been increasing, especially among researchers of the activity of society and by those involved in the policy decision process. Several types of statistics have focused on and registered different types of transactions; however, the national accounts have progressively made an effort to fully cover them. To this end, and also to allow comparability among countries, since 1953 an international system has been implemented to define rules and nomenclatures that can be adopted by countries or groups of countries and, in principle, better data. This system is now in its fourth version of 2008 in the case of the base system, which is known as the System of National Accounts (SNA) [2], and of 2010, in the case of the European system, which is known as European System of National and Regional

Monetary or nominal flows and the so-called income are associated with at least one of the abovementioned directions of market transactions. Therefore, those who have income can intervene in the market, and the level to which this is possible is associated with well-being,

In this chapter, a social accounting matrix (SAM), adapted for the SNA, is used for studying the income of institutions, or institutional sectors–defined by that system as being groups of those "engaged in the full range of transactions… on the basis of their principal functions, behaviour, and objectives" ([2], Paragraphs 2.16 and 2.17). An application for Portugal in 2015 will illustrate the various sections. The purpose is to study (measuring and modelling) the impact of the introduction of a social policy measure on the increase in households' income, on the socioeconomic activity of a country, and also on the associated institutions' income<sup>1</sup>

Section 2 presents the SAM framework, showing how society's activity is organised, using a top-down method, and also the underlying network of flows which can work together.

Covering the households' institutional sector of "all physical persons in the economy", and attributing to the (general) government institutional sector the political responsibility of, among others, "to redistribute income" ([2], Paragraph 2.17), Sections 3 and 4 focus on these two sectors. Thus, Section 3 identifies the structural features of the origin and use of the so called institutions' aggregate income. In turn, Section 4 simulates multiplier effects of a social policy measure of the increase in households' income, whereby the percentage changes regarding the original situation are compared with those that result from an identical

increase, but with a different origin (compensation of labour).

1

A summary and some remarks conclude the chapter in Section 5.

Social issues using SAMs were previously addressed by the Author, for instance, in [12–14].

.

power, and prestige, which justifies the importance of income and the attraction for it.

premise for understanding economic activity' ([1], p. 12).

2 Sustainability Assessment and Reporting

Accounts (ESA) in the European Community [3].

term "socioeconomic" is more appropriate to designate this activity.

The SAM represents the monetary or nominal flows occurring in a particular geographical space, during a given time period. As mentioned earlier, the version presented here is consistent with the rules and nomenclatures of the latest version of the SNA [2]. This is a version of the author, which was a result of research supported mainly by Stone [namely, 4–6], Pyatt [namely, [7–9], and Pyatt and Round [namely, 10].

#### **2.1. The macro SAM**

A SAM is a square matrix, with equal row and column sums. By convention, inflows are entries in rows, and outflows are entries in columns. Its adaptation to the SNA also allows one to state that the former describe resources, incomes, receipts or changes in liabilities, and net worth; whereas the latter describe uses, expenditures, or changes in assets.

**Table 1** represents a so-called "macro SAM", representing the highest aggregated level allowed by the national accounts, following a top-down method. From that level, the accounts (rows-columns) can be broken down into categories without losing the initial consistency. Numbers between brackets correspond to the application to Portugal in 2015, and it can be used to illustrate how the activity of a country in a specific year is portrayed with this SAM macro.

Therefore, with production and institutions' accounts representing the (domestic) economy and the underlying transactions, the so-called "circular flow of income" can be identified and specified. On the other hand, by means of the rest of the world account, the transactions between the (domestic) economy and that of abroad can be identified. Let us first take a snapshot of the activity of Portugal in 2015, as described later.

At the level of production accounts, the factors of production account show the aggregate or primary income generated in 2015, which is also designated as compensation of the factors of production, namely of labour and capital, which was in the sum of 162,306 million Euros. Reading in rows, this amount was respectively composed of 155,958 and 6347 million Euros, received from domestic activities2 and from the rest of the world3 . Reading in columns, this amount was composed of 149,923 and 12,382 million Euros, paid to domestic institutions4 and to the rest of the world, respectively.

In turn, continuing at the level of the production accounts, the activities account shows, respectively, the production value and the total costs associated with the process of production, which totalled 318,313 million Euros. In rows, this amount represents the output of goods and services. In columns, it comprises 155,958 million Euros of compensation of factors of production, 161,475 million Euros of intermediate consumption, 1867 million Euros of net

<sup>2</sup> Received by residents and non-residents working in the Portuguese economic territory. This amount is the gross added value, and it does not include taxes and subsidies on production and imports.

<sup>3</sup> Received by residents in the Portuguese economic territory working in the rest of the world.

<sup>4</sup> Paid to residents in the Portuguese economic territory working in the Portuguese economic territory and in the rest of the world. This amount is the gross national income, and it does not include taxes and subsidies on production and imports.


**Table 1.** A macro SAM of Portugal in 2015 (in millions of Euros). taxes on production received by the Portuguese Government, and – 986 million Euros of net

Finally, still at the level of the production accounts, the products account shows the main components of the aggregate demand and supply of the goods and services in the Portuguese economy in 2015, which amounted to 412,884 million Euros. Reading in rows, the aggregate demand was composed of 161,475 million Euros of intermediate consumption, 150,311 mil

lion Euros of final consumption, 28,452 million Euros of gross capital formation, and 72,648 million Euros of exports. Reading in columns, the aggregate supply was composed of 318,313 million Euros of the output of goods and services, 23,078 million Euros of net taxes on prod

ucts received by the Portuguese Government, − 108 million Euros of net taxes on products received by the institutions of the European Union (see footnote 5), and 71,601 million Euros of imports—the last two being added in the same cell. The trade and transport margins also feature as a component in the products account, which amounts to zero at this level of

At the level of the domestic institutions accounts, in the current account, the aggregate income of the Portuguese institutions in 2015 is shown, which amounted to 271,610 million Euros. The origin of this income is shown in rows, with the following composition: 149,923 million Euros of compensation of the factors of production received by domestic institutions; 1867 and 23,078 million Euros of net taxes on production and net taxes on products, respectively— both received by the Portuguese government, and 90,027 and 6716 million Euros of current transfers within domestic institutions and from the rest of the world, respectively. In turn, the destination or use of that same income is shown in columns, with the following composition: 150,311 million Euros of final consumption; 90,027 and 4415 million Euros of current transfers within domestic institutions and to the rest of the world, respectively, and 26,858 million Euros of gross savings. The capital account, apart from showing the net lending (or borrowing) of institutions, also shows information regarding acquisitions less disposals of non-financial assets (or the vari

ous types of investment in non-financial assets) and capital transfers, which amounted to 31,425 million Euros. Reading in rows, this amount represents investment funds, and it was composed of 26,858 million Euros of gross savings, and 2131 and 2436 million Euros of capital transfers within domestic institutions and from the rest of the world, respectively. Reading in columns, this amount represents aggregate investment and was composed of 28,452 million Euros of gross capital formation, 2131 and 276 million Euros of capital trans

fers within domestic institutions and to the rest of the world, respectively, and 567 million

The financial account represents the net flows associated with the acquisition of financial assets and the incurrence of liabilities, underlying which is the abovementioned net lending. These flows amounted to 8022 million Euros. Reading in rows, this amount is composed of 567 million Euros of net lending, 878 million Euros of net financial transactions within

domestic institutions, and 6577 million Euros of net financial transactions from the rest of 5 Due to the conventions underlying the SAM structure, this negative (net) amount represents a receipt and not an expen

diture, that is to say, the amount received as subsidies was greater than the amount expended on taxes.

5 .

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Using a Social Accounting Matrix for Analysing Institutions' Income: A Case from Portugal


5





taxes on production received by European Union institutions

disaggregation.

Euros of net lending.

taxes on production received by the Portuguese Government, and – 986 million Euros of net taxes on production received by European Union institutions5 .

Finally, still at the level of the production accounts, the products account shows the main components of the aggregate demand and supply of the goods and services in the Portuguese economy in 2015, which amounted to 412,884 million Euros. Reading in rows, the aggregate demand was composed of 161,475 million Euros of intermediate consumption, 150,311 million Euros of final consumption, 28,452 million Euros of gross capital formation, and 72,648 million Euros of exports. Reading in columns, the aggregate supply was composed of 318,313 million Euros of the output of goods and services, 23,078 million Euros of net taxes on products received by the Portuguese Government, − 108 million Euros of net taxes on products received by the institutions of the European Union (see footnote 5), and 71,601 million Euros of imports—the last two being added in the same cell. The trade and transport margins also feature as a component in the products account, which amounts to zero at this level of disaggregation.

At the level of the domestic institutions accounts, in the current account, the aggregate income of the Portuguese institutions in 2015 is shown, which amounted to 271,610 million Euros. The origin of this income is shown in rows, with the following composition: 149,923 million Euros of compensation of the factors of production received by domestic institutions; 1867 and 23,078 million Euros of net taxes on production and net taxes on products, respectively— both received by the Portuguese government, and 90,027 and 6716 million Euros of current transfers within domestic institutions and from the rest of the world, respectively. In turn, the destination or use of that same income is shown in columns, with the following composition: 150,311 million Euros of final consumption; 90,027 and 4415 million Euros of current transfers within domestic institutions and to the rest of the world, respectively, and 26,858 million Euros of gross savings.

The capital account, apart from showing the net lending (or borrowing) of institutions, also shows information regarding acquisitions less disposals of non-financial assets (or the various types of investment in non-financial assets) and capital transfers, which amounted to 31,425 million Euros. Reading in rows, this amount represents investment funds, and it was composed of 26,858 million Euros of gross savings, and 2131 and 2436 million Euros of capital transfers within domestic institutions and from the rest of the world, respectively. Reading in columns, this amount represents aggregate investment and was composed of 28,452 million Euros of gross capital formation, 2131 and 276 million Euros of capital transfers within domestic institutions and to the rest of the world, respectively, and 567 million Euros of net lending.

The financial account represents the net flows associated with the acquisition of financial assets and the incurrence of liabilities, underlying which is the abovementioned net lending. These flows amounted to 8022 million Euros. Reading in rows, this amount is composed of 567 million Euros of net lending, 878 million Euros of net financial transactions within domestic institutions, and 6577 million Euros of net financial transactions from the rest of

**Inflows (incomes, ..)**

Production

Factors of

0

production

Activities

0

0

Production

0

0

0

0

(318,313)

(Industries)

Products

0

Intermediate

Trade and

Final

Gross

0

Exports

(72,648)

consumption

transport

consumption

capital

formation

(28,452)

margins (0)

(150,311)

(161,475)

Institutions

Current

Gross national

Net taxes on

Net taxes on

Current

0

0

Current transfers

Aggregate

income

(271,610)

from the RW

(6716)

Capital transfers from

Investment

funds

(31,425)

the RW

(2436)

transfers

production

products

account

income

(149,923)

Capital

0

0

0

account

Financial

0

0

0

0

Net lending

Financial

Financial transactions

Total financial

transactions

transactions

from the RW

(878)

(6577)

(8022)

Transactions

value to the RW

(94,724)

(567)

account

Rest of the World (RW)

Compensation

Net taxes on

Imports

Current

Capital

Financial

transfers to

transactions to

the RW

the RW

transfers to

the RW

(4415)

(276)

(7144)

+ net taxes on

products

(71,601 + 108)

production

(−986)

of factors to

the RW

(12,382)

Aggregate

Total costs

Aggregate

Aggregate

Aggregate

Total financial

Transactions value

from the RW

investment

transactions

income

supply

(412,884)

(271,610)

(31,425)

(8022)

(94,724)

factors income

(318,313)

(162,306)

Sources: Statistics Portugal (*INE*); Portuguese Central Bank (*Banco de Portugal*).

A macro SAM of Portugal in 2015 (in millions of Euros).

**Table 1.**

TOTAL

(1867)

(23,078)

(90,027)

Gross saving

Capital

0

transfers

(2131)

(26,858)

**Outflows (expenditures, …)**

Production

**Factors of** 

**Activities** 

**Products**

**Current** 

**Capital** 

**account**

**account**

**(Industries)**

Gross added

0

0

0

0

Compensation of

Aggregate

4 Sustainability Assessment and Reporting

factors income

(162,306)

Production

value

(318,313)

Aggregate

demand

(412,884)

factors from the RW

(6347)

value (155,958)

**production**

Institutions

Rest of the World

Total

(RW)

**Financial account**

<sup>5</sup> Due to the conventions underlying the SAM structure, this negative (net) amount represents a receipt and not an expenditure, that is to say, the amount received as subsidies was greater than the amount expended on taxes.

the world. Reading in columns, besides the net financial transactions between domestic institutions (878 million Euros), this amount also includes 7144 million Euros of net financial transactions to the rest of the world.

can also be calculated directly from the SAM by adding the compensation of factors received by domestic institutions to the net taxes on production and on products received by domestic institutions (149,923 + 1867 + 23,078). The corresponding amount for Portugal in 2015 was

Using a Social Accounting Matrix for Analysing Institutions' Income: A Case from Portugal

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7

GNI is the income generated in the domestic economy and in the rest of the world by residents, added to the part received by the general government of net taxes on production and

Disposable income (DI) can be calculated by adding the net current transfers received by domestic institutions (6716–4415) to GNI. In our application for Portugal, this was 177,168

Gross saving and net lending or net borrowing are usually presented with the above macroeconomic aggregates, which are items that are provided directly by the SAM and, in the case of Portugal in 2015, were 26,858 and 567 million Euros, respectively, with the last being net

Representing the capital and financial accounts the investment in nonfinancial and financial assets, respectively, which is the so-called accumulated income of institutions, the study that follows is going to be on the current or aggregate income of institutions. Thus, let us focus our attention on the current account of institutional sectors, highlighted with thicker borders

From the reading of the macro SAM presented in Subsection 2.1, it is possible to see that the study of the institutions' income, in general, and of the effects of a social policy measure of the increase in households' income, in particular, involves the current or aggregate institutions' income, which supposes the disaggregation of the institutions' current account. On the other hand, as illustrated in **Table 1**, because the main source of that income is GNI, that is to say, the compensation of factors of production received by residents, or the income generated by them in the (domestic) economy and abroad, the factors of production account should also

According to the SNA nomenclatures and the available information provided by the national accounts, the disaggregation of the factors of production account are going to be made in 'labour' and 'others' (factors of production), with the former (labour) including the compensation of employees, and the later (others) including the compensation of employers and ownaccount (or self-employed) workers, and also the compensation of capital, namely property income. In turn, although five institutional sectors can be identified in the institutions' current account, considering that the abovementioned purpose of this study, this disaggregation is going to be in: 'households'—"all physical person in the economy"; '(general) government' with the political responsibility of redistributing income, and 'others'—the non-financial and

**3. The origin and the use of institutions' aggregate income**

financial corporations and non-profit institutions serving households.

174,868 million Euros.

million Euros.

lending.

in **Table 1**.

have some disaggregation.

imports, to be valued at market prices.

The rest of the world account shows all the transactions between resident and non-resident actors in the accounts described earlier (production and domestic institutions), or between the Portuguese economy and the rest of the world in 2015, which amounted to 94,724 million Euros. Thus, the row represents the flows to the rest of the world, with the following composition: 12,382 million Euros of compensation of factors of production, − 986 million Euros of net taxes on production (taxes received minus subsidies paid by European Union institutions), 71,493 million Euros of imports (71,691 million Euros), to which is added net taxes on products (− 108 million Euros, of taxes received, minus subsidies paid by European Union institutions), 4415 million Euros of current transfers, 276 million Euros of capital transfers, and 7144 million Euros of financial transactions. In turn, the columns show the decomposition of the flows from the rest of the world as follows: 6347 million Euros of compensation of factors of production; 72,648 million Euros of exports; 6716 million Euros of current transfers; 2436 million Euros of capital transfers, and 6577 million Euros of net financial transactions.

Therefore, as can be checked in the structure of an integrated economic accounts table of the national accounts, practically all the flows measured by the latter are covered by the SAM the grand totals in the above-presented macro SAM; other levels of disaggregation in SAMs constructed for specific studies, always respecting those grand totals.

#### **2.2. The macroeconomic aggregates and balances**

As practically all the flows observed and measured by the national accounts are included in the above-presented SAM, it is possible to calculate and/or extract from it the main macroeconomic aggregates that are usually considered.

The following description is based on **Table 1**.

Gross domestic product (GDP) can be calculated using the three known approaches: the production approach - in which intermediate consumption (161,475) is subtracted from production, or from the output of goods and services (318,313), adding the net taxes on products (23,078–108); the expenditure approach—in which final consumption (150,311), gross capital formation (28,452), and net exports (72,648–71,601) are added; and the income approach - in which net taxes on production and imports (23,078–108 + 1867–986) are added to the gross added value (155,958). The Portuguese GDP in 2015 was 179,809 million Euros.

GDP is the income generated in the domestic economy by residents and non-residents, added to the total net taxes on production and imports, to be valued at market prices.

Gross domestic product can be converted into gross national product or income (GNI) by adding the compensation of factors of production (labour and capital) received from the rest of the world (6347) and by deducting the compensation of factors of production (labour and capital) and net taxes on production and imports sent to the rest of the world (12,382–986 - 108). GNI can also be calculated directly from the SAM by adding the compensation of factors received by domestic institutions to the net taxes on production and on products received by domestic institutions (149,923 + 1867 + 23,078). The corresponding amount for Portugal in 2015 was 174,868 million Euros.

the world. Reading in columns, besides the net financial transactions between domestic institutions (878 million Euros), this amount also includes 7144 million Euros of net financial

The rest of the world account shows all the transactions between resident and non-resident actors in the accounts described earlier (production and domestic institutions), or between the Portuguese economy and the rest of the world in 2015, which amounted to 94,724 million Euros. Thus, the row represents the flows to the rest of the world, with the following composition: 12,382 million Euros of compensation of factors of production, − 986 million Euros of net taxes on production (taxes received minus subsidies paid by European Union institutions), 71,493 million Euros of imports (71,691 million Euros), to which is added net taxes on products (− 108 million Euros, of taxes received, minus subsidies paid by European Union institutions), 4415 million Euros of current transfers, 276 million Euros of capital transfers, and 7144 million Euros of financial transactions. In turn, the columns show the decomposition of the flows from the rest of the world as follows: 6347 million Euros of compensation of factors of production; 72,648 million Euros of exports; 6716 million Euros of current transfers; 2436 million Euros of capital transfers, and 6577 million Euros of net

Therefore, as can be checked in the structure of an integrated economic accounts table of the national accounts, practically all the flows measured by the latter are covered by the SAM the grand totals in the above-presented macro SAM; other levels of disaggregation in SAMs

As practically all the flows observed and measured by the national accounts are included in the above-presented SAM, it is possible to calculate and/or extract from it the main macroeco-

Gross domestic product (GDP) can be calculated using the three known approaches: the production approach - in which intermediate consumption (161,475) is subtracted from production, or from the output of goods and services (318,313), adding the net taxes on products (23,078–108); the expenditure approach—in which final consumption (150,311), gross capital formation (28,452), and net exports (72,648–71,601) are added; and the income approach - in which net taxes on production and imports (23,078–108 + 1867–986) are added to the gross

GDP is the income generated in the domestic economy by residents and non-residents, added

Gross domestic product can be converted into gross national product or income (GNI) by adding the compensation of factors of production (labour and capital) received from the rest of the world (6347) and by deducting the compensation of factors of production (labour and capital) and net taxes on production and imports sent to the rest of the world (12,382–986 - 108). GNI

added value (155,958). The Portuguese GDP in 2015 was 179,809 million Euros.

to the total net taxes on production and imports, to be valued at market prices.

constructed for specific studies, always respecting those grand totals.

**2.2. The macroeconomic aggregates and balances**

nomic aggregates that are usually considered. The following description is based on **Table 1**.

transactions to the rest of the world.

6 Sustainability Assessment and Reporting

financial transactions.

GNI is the income generated in the domestic economy and in the rest of the world by residents, added to the part received by the general government of net taxes on production and imports, to be valued at market prices.

Disposable income (DI) can be calculated by adding the net current transfers received by domestic institutions (6716–4415) to GNI. In our application for Portugal, this was 177,168 million Euros.

Gross saving and net lending or net borrowing are usually presented with the above macroeconomic aggregates, which are items that are provided directly by the SAM and, in the case of Portugal in 2015, were 26,858 and 567 million Euros, respectively, with the last being net lending.

Representing the capital and financial accounts the investment in nonfinancial and financial assets, respectively, which is the so-called accumulated income of institutions, the study that follows is going to be on the current or aggregate income of institutions. Thus, let us focus our attention on the current account of institutional sectors, highlighted with thicker borders in **Table 1**.
