This problem has been discussed for the last few years because any effective fiscal policy requires a clear definition of the public sector. In recent years, the use of private sector management techniques in the public sector, as well as private sector provision of public goods, has blossomed. Governments in many countries participate in public-private partnerships (PPPs), outsource or contract out to private sector suppliers, or use publicly-funded vouchers for supplying public goods.

Certain functions and monopolistic-type activities, which were previously thought to be reserved for public sector provision, are now either furnished by the private sector, though funded publicly, or have been transferred to the private sector, through partial or full disengagement of the government from state-owned enterprises. In addition, private sector financial accounting standards have influenced changes in public sector accounting methodologies, with increasing use of accrual accounting for preparing government financial statements. More generally, the private sector is being looked at as the “model” for good budget and public financial management practice.

The boundary between the public and private sectors can be defined on the basis of ownership of institutional units. It seems very simple at this point. On the basis of this Nonmarket government-owned entities and corporations that are owned or controlled by government units can be said belonging to the public sector, while others can be considered as private sector.

However, problem arises when “Economic ownership” becomes more important than majority ownership. The paper said that joint ventures, public-private partnerships, and social insurance funds (including for public employees) can be unambiguously allocated to the public or private sector on the basis of international public sector accounting standards. Boundary problems within the public sector are just as acute as those between the public and private sectors, mainly because of ambiguities in distinguishing “market” from “nonmarket” activities.

The paper tried to examin various questions confronting the present world. With increasing use by governments of market mechanisms and private sector provision of public services, has the borderline between the public and private sectors become blurred? Is it still possible to define the public and private sectors in black and white terms? If not, is there now a third “gray zone”, which is “semi-private” and “semi-public”, and whose activities belong neither to the traditional public sector, nor to the profit-driven private sector? If yes, could law be used to demarcate such a gray zone, clarify its conceptual basis, and offer a standard for defining the gray zone consistently across all countries?

The author argued that, to the extent that a gray zone exists, it is possible to allocate component parts to the public and private sectors. Conceptual issues—especially two key defining characteristics of the public and private sector, namely ownership and control were also discussed. The extent to which laws could be helpful for defining more clearly the public and private sectors was also investigated. The paper elaborates on a conceptual framework for defining the public sector. This is based on the IMF’s Government Financial Statistics Manual. The application of this framework to joint ventures, leasing, PPPs and social security funds involving private and public companies or entities is also examined. Within the public sector, the difficulties of demarcating the boundary between public corporations and “general government” was discussed to reach at certain conclusions.

The paper concluded that the boundary between the public and private sectors, at a conceptual level, can be defined unambiguously emphasizing the concept of ownership as the basis for delineating the two sectors. The notion of an “institutional unit” is also fundamental, the paper said.#