general government units aim to achieve through various kinds of outlays. It is one of four classifications referred to as classifications of expenditure according to purpose.<sup>7</sup> The COFOG classifies government outlays by functions of general interest and amenable to a wide variety of analytic applications. Statistics on health, education, social protection, and environmental protection, for example, may be used to study the effectiveness of government programs in those areas.

The classification codes of the COFOG are somewhat different from the structure of other global financial system (GFS) classification codes. The functions are classified using a three-level scheme.<sup>8</sup>

- There are 10 first-level, or two-digit categories, referred to as divisions. Examples are health (Division 07) and social protection (Division 10).

- Within each division, there are several groups, or three-digit categories, such as hospital services (073) and sickness and disability (101).

- Within each group, there are one or more classes, or four-digit categories, such as nursing and convalescent home services (0734) and disability (1012).

All outlays for a particular function are collected in one category of the COFOG, regardless of how the outlays are implemented. That is, cash transfer payments designed to be used for a particular function, the purchase of goods and services from a market producer that are transferred to households for the same function, the production of goods and services by a general government unit, or the acquisition of an asset for that same function are all in the same category. The economic classification of the expense—that is, whether an outlay is used for rehabilitation of existing assets or payment of salaries, or so on—will be given by an additional attribute in the budget item coding (see below).

The COFOG allows trends in government outlays of various kinds and purposes to be examined over time. Conventional government accounts are not usually suitable for this purpose because they reflect the organizational structures of governments. Not only may time series be distorted by organizational changes, but at a specific time some organizations may be responsible for more than one function, and responsibility for one function may be divided among several organizations. For example, if a government establishes a new department that brings together some of the functions previously administered by several departments or at several levels of government, it will not usually be possible to use conventional government accounts to compare outlays for these purposes over time.

The COFOG is also used to make international comparisons of the extent to which governments are involved in economic and social functions. Just as the COFOG avoids the problems of organizational changes in a single government, it also avoids the problems of organizational differences across countries. For example, in one country all functions connected with water supply may be undertaken by a single

> 7 This section includes excerpts from chapter 6 of the Government Finance Statistics Manual 2001 (GFSM 2001) by the International Monetary Fund (IMF). The COFOG was produced by the Organisation for Economic Co-operation and Development (OECD) and was published together with the three other classifications in the United Nations‘ Classifications of Expenditure according to Purpose (New York, 2000). Original material of the GFSM 2001 regarding the COFOG is adapted from that publication.

> 8 All three classification levels and detailed descriptions of the contents of each class are reproduced in annex 1 as discussed in chapter 6 of the GFSM 2001.

36