Overview of the relative economic importance of the institutional sectors
Chart S1-1 shows the structural shares of each institutional sector in several key economic indicators for the euro area. A chart for the European Union would be similar.
The biggest share of GDP (or gross value added) originates in non-financial corporations (around 60%), while slightly less than one-quarter is generated by household production activities, mainly the imputed value of the services from owner-occupied dwellings, and small businesses. The government accounts for around 15% and financial corporations for a small fraction of GDP.
Most value added created in the corporate and government sectors is passed on to households in the form of salaries and total (employers’ and employees') social contributions. The dominant share of national income thus accrues to the household sector.
Subsequently, this share is somewhat reduced by taxes, net social insurance payments and other transfers, which are largely paid to the government. This results in the disposable income, which is available for consumption or saving.
Both households and government spend a large proportion of their disposable income on consumption. As a result, the share of households and government in saving is smaller and the share of financial and non-financial corporations is larger than their shares in disposable income.
For non-financial corporations, disposable income broadly equals their gross saving, which is broadly equivalent to retained earnings plus depreciation in business accounting. Households and non-financial corporations undertake most investment (gross fixed capital formation at around 30% and 50% respectively).
The net indicators (net disposable income, net saving etc.) are computed by deducting consumption of fixed capital from the gross indicators. The consumption of fixed capital represents the amount of fixed assets (buildings, machinery etc…) used up during the period under consideration as a result of normal wear and tear and foreseeable obsolescence. In other words, net income represents the amounts available for consumption and saving after making provisions for the future replacement costs of used or obsolete fixed assets.
