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Ö N K Ö P I N GI
N T E R N A T I O N A LB
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C H O O L JÖNKÖPING UNIVERSITYE c o n o m i c I m pa c ts o f Sp o r t
E v e n ts
Case study
Of
The European Championships in Figure Skating Malmö City 2003
Paper within: Bachelor Thesis within Economics Author: Lina Nordin
Tutor: Lars Pettersson Jönköping: May 2008
Bachelor Thesis within Economics
Title: Economic Impacts of Events- Case study of The European Championships in Figure Skating Malmö City 2003
Authors:
Lina Nordin (830918)Tutors:
Lars PetterssonDate:
VT08Keywords: Event, Economic effects, Athlete associations, Public funding, Multiplier analysis, Braunerhielm and Andersson (2007), Municipality
Abstract
This thesis is based on two questions: What are the differences in the outcome of a sport event depending on the choice of method to be used for evaluation? And what method is the most appropriate one in terms of evaluation of the economic effects of sport events? There are two methods used: and the first one is the traditional multiplier analysis and the second method used is introduced by Braunerhielm and Andersson (2007). The economic results of the two different methods used in this thesis have been applied on a real life event, The European Championships in Figure Skating in Malmö City 2003. The two methods is of great importance and they provide us with two suggested results that are of interest, but what method to be used depends on who is making the evaluation and for what purpose. The suggested method by Braunerhielm and Andersson (2007) results in an outcome representing the economic effects of the event concerning all areas in the munici-pality involved both the private sector and the public sector. This method is of best use for athlete organizations that wants to keep a continuous record of their contribution towards the municipality through events and the positive result will help them promote their impor-tance of existence to the municipality so that they can get public funding for arranging fu-ture events and gain more profit by increasing the interest of their association. Whereas, the multiplier analysis is appropriate to use for the municipality, as the results is the tax revenue gained from the event that is to be reinvested in e.g. new schools or roads the re-sult will then help promoting the public funding of sport events to the public. The appro-priate method to use is the multiplier analysis as it generates results that is of interest for the public as it calculates the effect for the municipality as a whole and not only the effects for the once directly involved in the sport event.
Table of Contents
1
Introduction... Erreur ! Signet non défini.
1.1 Problem discussion... Erreur ! Signet non défini.
2 Background of Events... 3
2.2 Background the European Championships in Malmö City 2003 ... 4
3
Theoretical findings... 5
3.1 Earlier Studies... 5
3.2 Multiplier analyses ... Erreur ! Signet non défini. 3.3 Braunerhilem and Andersson (2007) ... 9
4
Empirical result... 10
4.1 Summery of Survey ... 10
4.2 Multiplier analysis ... 10
4.3 Braunerhielm and Andersson (2007) ... 17
5
Analysis... 18
6
Conclusion ... 21
6.1 Problems... 22
6.2 Suggestions for further research... 22
References ... 23
Appendix 1 ... 25
Appendix 2 ... 27
Figures and tables:
Equation 1: W=F (U
1, U2,...,Un)
Figure 1.1: Illustration of rivalry and excludability (Lindwall, 2007)
Figure 2.1: Three levels of evaluations according to a “bottom up” perspective (Mossberg, 2000)
Figure 3.1: general model of the effects of events on the public sector. Bold text within the boxes represents the effects that have an impact on the public sector. (Andersson et al, 2000)
Figure 4.1: The multiplier through the economy (Klaesson, 200) (See Appendix1)
Table 1: Secondary effects, revenues of the event budget Table 2: Secondary effects, expenses of the event budget
Table 3: Spending pattern per person and day (The Swedish Research Institute of Tour-ism, 2003)
Table 4: calculation of the multiplier used 1.4 Table 5: Percentages of the primary input factors Table 6: Value added of the four primary input factors Table 7: Calculations of Value added
Table 8: Financial effects on the public sector
Table 9: Distribution of Income generated to Malmö City
1 Introduction
This thesis will analyze the economic effect of a stadium event in a municipality. To see the economic effect more clearly this thesis will be written as a case study of the European Championships in Figure Skating in Malmö city 2003. Events are held all over the world in different forms and scales and most of us view events as something entertaining. If a mu-nicipality decides to arrange an event not only people directly involved in the event will be affected. The reasons for hosting an event are many, but it has often its ground in eco-nomic nature as the generation of tourist expenditure is of great means for the municipal-ity. The demand that is created for an event does not only include the actual event but also the range of related services, “which are called the ingredients of the tourism experience: accommodation (hotel, youth hostel and boarding- house), food (restaurant, hamburger and hot- dog stands and café), travel (bus, boat, train, bike, canoe and car rental) and activi-ties (museums, amusements parks, sports and bathing faciliactivi-ties)” (Mossberg, 2000). There are many ways to analyze the economic effects of events and finding the most ap-propriate one is of great means, since money generated from events are of great impor-tance for a municipality. The money that finances events is often public funding which cre-ates a need for an appropriate method to be used, as it enables the municipalities to pro-mote the existence of the event to the public.
This thesis will be based on two research questions: What are the differences in the out-come of an event depending on the choice of method to be used for evaluation? And what method is the most appropriate one to use in terms of evaluating the eco-nomic effects of a sport event? To answer these questions two methods will be applied on The European Championships in Figure Skating in Malmö City 2003. The data used in this thesis is based on an evaluation of The European Championships in Figure Skating in Malmö City 2003 that was made by The Swedish Research Institute of Tourism (2003) commissioned by the municipality of Malmö City. The two method that will be applied to the case are: The traditional multiplier analyses and/or an input- output analyses (Andersson & Samuelsson, 2000) and The second method is one that recently been introduced by Braunerhielm and Andersson (2007) that is a simplified method to be used by associations within the municipalities. The result of these two methods will enable us to answer the two research questions and fulfill the purpose of finding an appro-priate method to be used when calculating the economic impacts of sport events.
1.1 Problem discussion
The topic chosen is interesting due to that the advantages for public sector investments are difficult to promote. Göran Långsved is in charge of tourism development in Stockholm and expressed the following for the discussion of the problems of convincing people about advantages of an event (Andersson, 2000).
tioned whether public money should be financing events of whether it is a better investment to build kinder-gartens or new roads. One reason for the debate is the difficulties in assessing the economic impacts. Also, there are difficulties in presenting the potential real effects in an easy pedagogical way in the media. Events are therefore vulnerable. It is easier to argue for investments in the leisure and congress market.” (Anders-son, 2000)
At a given time every municipality have a certain amount of resources for their disposal, the economical system that is used will make sure that the resources are used in the most effective way. The resources can be used in a numerous way, how much and what is going to be produced, how shall the production be organized, how much of the municipalities inhabitants time should be put on production respective of spare time, and how much en-vironmental resources should be used in the production etc. etc. To be able to answer the question that concerns the matter of priorities among different activities, it is important to clarify what goals the economic system has and after what criteria’s the different ways of using the resources should be assessed. It could be omitted that the resources are used in the best possible way for the inhabitants in the municipality, which could be seen as re-sources are being used to maximize the welfare in the municipality, in economic theory it is expressed as followed:
W=F (U
1, U2,...,Un) (1)
Where W stands for welfare and U is the utility level for individual i. This utility explains each individual’s utility. For this function to be maximized for each individual in a munici-pality during the time of an event an appropriate method that calculate and highlight the utility for the individuals in a municipality caused by an event is of importance.
An event is of interest when talking about rivalry and excludability, it is a concept that cate-gories different utilities that could be illustrated in a figure. In origin there is no rivalry and no possibility to exclude individuals from consumption. In spot X everyone that does not pay the price will be excluded and the rivalry is complete, meaning that only one consumer can consume one unit of the utility. Examples of utilities in origin could be measures that improves the ozone layer, counteract pollution etc. Examples of utilities in X are clothes, provisions etc. If there is no excludability and no rivalry it is called collective utility, which means that everyone can consume it, but ones consumption does not effect ones con-sumption. The picture below shows the relationship between rivalry and excludability (Lindwall, 2007).
1 Background of Events
The event…
“is a one-time or recurring event of limited duration, which is held no more frequently than once a year, has a program, an organizing body, a number of participants and it is open to the public, and Apart from the intrinsic objectives (e.g. sport, culture, religion) is developed primarily to enhance awareness, appeal and profitability of the
host/region/country as a tourist destination.” (Ritchie, 1984)
The impact of an event can be divided into three categories: Social Impact- “The social part for a community to arrange an event is the benefit of improving the social ties and an opportunity for the community to demonstrate that they can pull it together for the greater good.” (Parry & Shone, 2004) Political Impact- “Sporting events play a political role in addition to the social and economic roles. This is because of the perceived economic ef-fects but on the other hand it is also positive political impacts, such as improving the inter-national image of the country or in the case of some events as a means of gaining other po-litical benefits such as public exposure.” (Parry et al, 2004) Economic impact- “Tourist town has long understood that the benefits of running events can during the tourist season bring more people to the town and thus encourage further spending in local shops and businesses or it can extend the season in some way.” (Parry et al, 2004)
The impact on a local community of major events let it be a sporting event, or a large cul-tural event such as a festival can be looked at in terms of a cost- benefit analysis or through an economic multiplier analysis. (Braun & Rungling, 1992; Tribe, 1999) Special events may not provide huge direct employment, but the indirect effects on local businesses, local ser-vices and local infrastructure and environment could be extremely significant. The indirect effects of incoming spending of this kinds may include the support of activities such as re-tailing, visitors buying anything from magazines to clothing, and catering, visitors using res-taurants, coffee shops and pubs, to less obvious visitor support of services such as, trans-ports, taxis, printers, technical equipment, local musicians and entertainers, marquee con-tractors photographers and many other types of supplies and suppliers. Some resorts and cities have seen special events as their economic salvation (Parry et al, 2004).
x
RIVALRY
EXCLUDABILITY
Figure 1.1: Illustration of rivalry and excludability (Lindwall, 2007) EVENT
In the context of a community the running of a major event it is often perceived as having a positive social and economic impact, in much the same way that the construction of a factory or tourist attraction would. This economic impact is not very well documented, but some studies especially on sport events give various clues about these benefits. Some events is seen as a matter of civic business, that is to say, the event my be organized or even sponsored by the city or town council and based, at least in part on the economic and social benefits that it brings to the community, in terms of increased numbers of visitors or an increased visitor spend. Given the size and the extent of some events, the economic and social benefits may be very greatly (Law, 1993).
Events have a great impact and have been a feature of society from its early days. Events serve to strengthening social bonds, to bring enjoyment and celebration to individuals, families, community and the society as a whole. Events are also stimulated by social and economic benefits including the provision of direct and indirect employment, the en-hancement of facilities and the improvement of local services. (Parry et al, 2004)
Economic impact analysis are used to evaluate the effects of events and are used for vari-ous reasons, “First level- the effects directly attributable to the event as such are evaluated and Second level- as events have impacts on the region involved as, well as on the public sector and the society at large, the effects on these levels will also be taken into account” (Andersson & Samuelsson, 2000).
Welfare evaluations
+/- Consumers and producers surplus, externalities, distribution effects
The public Sector
+/- Direct and indirect effects, opportunity cost, taxes, reduced unemployment
The Event
Figure 2.1: Three levels of evaluations according to a “bottom up” perspective (Mossberg, 2000)
1.2 Background the European Championship in Malmö City 2003
Malmö city organized the European Championships in Figure Skating that were held be-tween 19th
of January and 26th
The European Championships in figure skating is held yearly for the purpose of designate the skaters from 40 different countries participating. There were two types of tickets sold to enter the event: All- event tickets- including the whole championship week plus the final show and single tickets- including only one competition day
The European Championship in figure skating is the first figure skating arrangement of the year. It is one of the largest media covered event in Europe. Approximately 400 visitors of the event originate from international and national media.
The event requires a lot planning and an extensive organisation to pull the event together. Approximately 400 volunteers were involved during the competition. Around the event there were a lot of other activities, such as: opening ceremony, parties and a closing ban-quet.
On public areas inside the stadium selling of souvenirs, food and snacks, figure skating equipment were held, there was also a lunch restaurant available in the event area.
The European Championships in figure skating is prestigious and public attractive. It is one of the largest events arranged by Malmö City 2003.
Ticket sales amounted up to 34700 in addition to that VIPs and media were amounted to 800 persons.
3 Theoretical findings
This section will start with presenting some earlier studies that represent some real eco-nomic effects from events. The second part of this section will present the common pur-pose of the two different methods used in this thesis. The third part of this study will go through the input- output- and multiplier analysis, which is a traditional method of evaluat-ing economic effects of events (Andersson et al, 2000). The fourth part of this section will go through the steps in the simplified method that is suggested by Braunerhielm and Andersson (2007) to use when to analyze the economic effects of events.
3.1 Earlier Studies
There have been many earlier studies of evaluating the economic effect of events, but not every event is interesting too look at, as it is not relevant for this paper. Events can be clas-sified into four categories.
• Mega- events- largest events targeted at international market. All such events have a specific yield in terms of increased tourism, media coverage and economic impact (Van Der Wagen, 2001).
• Hallmark events- Hallmark events are to increase the appeal of specific tourism destination or region through annual events (Van Der Wagen, 2001).
• Major events- events attracting significant local interest and large number of par-ticipants, as well as generating significant tourism revenue (Van Der Wagen, 2001).
• Minor events- Most events fall into this category, meetings, parties, celebrations, award ceremonies, sporting finals and many other falls into this category (Van Der Wagen, 2001).
The European Championships in Figure Skating in Malmö City 2003 could go into the category of minor event, but since the specific yields suits the one of mega events, studies concerning both types of events are of great means for this thesis.
Spilling (2000) analyzed the long- term industrial impacts of mega- events of the Olympic Games in Lillehammer 1994. The main conclusion made from this study is that “mega-event is a temporary phenomenon, and the main impacts of the Lillehammer Olympics may be characterized as an intermezzo”. (Spilling, 2000) There are long- term effects, but they are seen as marginal compared to the activity of the region. If the hosting region were to be covering the deficit that arises, serious economic problems would have developed, but the government paid it all and did also provide local authorities with extra funding. Hosting the Winter Olympics has been mainly been looked upon as an advantage, but in the national perspective the conclusion in economic terms is the opposite (Spilling, 2000). The main conclusion made from Spilling (2000) is that: “looking beyond the intermezzo, which is the main mechanism of an event, it turns out guite clearly that the long- term in-dustrial impacts are very marginal and in no way justify the huge costs of hosting the events”.
Andersson (1985) analyzed the economic effect of Bruce Springsteen concert in Göteborg 1985. This type of event is classified as a minor event and, which is of much smaller size than the earlier discussed case of the Winter Olympics in Lillehammer 1994. The main conclusion of the event was that the event resulted in an increase of the welfare in the soci-ety without decreasing the welfare for someone else. Bruce Springsteen concert in Göte-borg 1985 is analyzed in relation to the main goal of achieving a good event politics. Andersson (1985) states in his results that through the analysis of different events the knowledge of the different economic effects and the prerequisites to create supplies that meet the three event politic goals increases.
Uddholm Swedish Rally (USR) is Scandinavians biggest annual event, this could be classi-fied as a hallmark event. Calculations show that USR generates 40 million Swedish Crowns to the municipality of Värmland. It is also recognized that this event is held during low sea-son causing that the used resources would without the event been unused, causing the op-portunity cost to be low, whereas if it were to be held during high season the opop-portunity cost would have been high and generated income would be lower (Braunerhielm & Andersson, 2007).
By studying the flow of capital to and from the athlete associations, the purpose of estimat-ing the role of sport events on a local, regional, national and international level is possible. When the association’s income and expenses are traced to different private and public ac-tors it enables us to view the association’s economical network. If the local association con-tributes more to the municipality than what it takes the result for the municipality is
tive. Money from national and international sponsors and contributions and visitors passes through the athlete association and further out to the public and private sector by the pur-chase of goods and services, rent and taxes, these things generates income for the munici-pality (Braunerhielm et al, 2007)
3.2 Multiplier analyses
There is a general model that describes the most important variables to be taken into ac-count when evaluating the effects on the public sector of events.
1. Attractiveness of the event of the area
Primary effect 2. Number of visitors, TV and sponsor coverage, etc.
3. Event organiser’s 4.Tourism Industry 5.Public sector Secondary direct effects
6. Indirect effect on suppliers and subcontractors Secondary indirect effects
7. Gross wages 8. Gross profit 9. Indirect taxes 10. Gross Import Tertiary effect
11. Local taxes 12. Social Security Fees 13. Total State Taxes
Tertiary effects on the Public sector
Figure 3.1: general model of the effects of events on the public sector. Bold text within the boxes represents the effects that have an impact on the public sector. (Andersson et al, 2000)
The general logic behind this model starting at the top
:
The attractiveness of the event- de-termines the primary effects that generate demand from visitors and TV and Sponsors- this demands means revenues and costs to different secondary beneficiaries, such as: Event or-ganisation, Tourism Industry, Public Sector. Secondary beneficiaries will have to purchase resources of different kinds from different suppliers and this will result in various so- called indirect effects. (Andersson et al, 2000)Value added among the four primary input
factors
consist of the four “basic economic elements” (Andersson, 1999) Salaries and Wages, Gross profit, Indirect taxes (e.g. VAT), Import (are of greatest importance to the public sector) (Andersson et al, 2000) these economic elements constitute the tax base and are treated differently in different countries. Thus the tax effect for the public sector will vary between countries according to tax legislation and other institutional arrangements prevailing in each country. (Andersson et al, 2000)In the final stage the tax effects for the public sector determines, i.e. taxes and fees levied by the municipalities and includes local taxes, social Security Fees, total State Taxes (Andersson et al, 2000) When these steps are calculated the overall effect can be deter-mined. The first variable to be determined is the magnitude of the primary effects to see the future and the actual effect of an event. (1 and 2) (Andersson et al, 2000) This is done by answering the two questions: How many visitors will the event attract?, How much money can TV and sponsors rise? These two estimates are often included in the event budget.
Secondary effects- combine direct and indirect effects
Getz (1997) over-view the estimators of how direct tourism effects are carried out. Canada and Sweden are examples of countries publishing so- called Tourism satellite account as and aid to show normal amount spent by visitors and tourist of different kinds and on different objects. Examples of some direct secondary costs are health care and police services that could af-fect the public services which in some cases financed by the event. These direct secondary costs can to some extent be financed by the visitor through payments of health care re-ceived. The remaining part will be financed through public budgets. There will be no net effect on the economy if the governments choose to switch public spending from one ac-tivity to another. If public spending were to be raised through a tax increase the extra tax amount levied should be calculated as the marginal cost for public funds. The so- called dead weight loss should be accounted for, which in Sweden is done by adding 30% to the amount raised. (Andersson et al, 2000) To be able to make a fair estimate of the indirect secondary effect the first thing to do are to determine the net financial contributions re-lated to an event. When comparing the direct secondary effect and the opportunity cost we can clarify the amount that represents an increase spent in a region and what amount that only represents a change in the use of these contributions from one activity to another. The net increase in the funds is the only thing that is to be taken into account when calculating the indirect effect. (Andersson et al, 2000) net contributions Are money spent from visitors outside the region and will induce the indirect effects. The boarders of the region need to be clearly identified when this classification is made. The money that is spent among visi-tors within the region will represent a change of object of spending and will not generate a net increase in the level of spending. The effect of the event of each individual industry should be made by using a multiplier, which shows the effects on the revenues of the indi-rect industries for each diindi-rect industry. Multipliers are available in several countries with different level of aggregation. The applicability in certain case has to be determined (Getz, 1997). There are two different ways of calculating multipliers. Both are based on the mathematical properties of infinite series and they are both the result of work by out-standing economists (Andersson et al, 2000).
The Keynes (1933) type of multiplier assumes a marginal propensity to consume and as-sumes this to be valid for the whole economy. To analyze an event the marginal approach seems appropriate, but less precise when assuming the same marginal effects for the tour-ism industry as for any other part of the economy. Specific multipliers for the tourtour-ism in-dustry have been developed for various countries “`Leakage` is a central concept and de-termines the size of the multiplier. The smaller the area studied the greater the leakage and the smaller the multiplier. The comprehensive multiplier for Sweden has been estimated at somewhere in excess of 50% whereas on regional basis multipliers of 20- 35% have been used” (Andersson et al, 2000). (See Appendix 1)
The input- output type of multiplier (Leontief, 1936)- is on a basis of a detailed analysis of 50- 100 industries. Every fifth year a detailed input- output table for a little less than 100 industries are produced in Sweden. The table is produced on the basis of the average be-haviour of each industry regarding input requirements from other industries and from pri-mary input factors such as labour and capital. Leontief versus Keynes, the advantage of Leontief multiplier is the detailed analysis by sector but Keynes marginal approach is more appropriate Leontief’s marginal approach when evaluating an event (Andersson et al, 2000). (See Appendix 2)
3.3
Braunerhielm and Andersson (2007)
Braunerhielm and Andersson (2007) have worked out a method that can be used as a when evaluating sport events. This method is based on three different table’s labelled R7- R9. R7, presents the associations Income, R8, presents the associations Expenses
R9, calculations from R7 and R8 are transferred into the R9 table. The purpose with R9 re-sult report is to show the balance between the public and the association. R9 shows total income and expenses from both private and public sector. The net result shows the income and expenses from each geographical area. R9, Shows from which geographical zones the associations have contributed to capital inflow. The purpose with this last step is to show contributions from visitor expenses of e.g. food and accommodation in connection to the event. Braunerhielm and Andersson (2007) have suggested different questionnaires, which make it possible to do an audience profile. There is also a table labelled R10 that is to be used to calculate the involvement of the event from the association’s point of view. This table will not be presented in this thesis as it is not of relevance. When the results from R7, R8 and R9 are clear they are summarized in a table that calculates the tax income effect to the municipality both from the private and the public sector. Appendix 4 presents the sug-gestions from Braunerhielm and Andersson (2007) of all tables and questionnaires to be used, when applying their method.
By studying the flow of capital to and from the athlete associations, the purpose of estimat-ing the role of sport events on a local, regional, national and international level is possible. When the association’s income and expenses are traced to different private and public ac-tors it enables us to view the association’s economical network. If the local association con-tributes more to the municipality than what it takes the result for the municipality is posi-tive. Money from national and international sponsors and contributions and visitors passes through the athlete association and further out to the public and private sector by the
chase of goods and services, rent and taxes, these things generates income for the munici-pality (Braunerhielm and Andersson, 2007).
4
Empirical result
4.1
Summary of SurveyEffects on the public sector of this event will be evaluated and some figures used in this paper for calculations made to evaluate the economic effects originates from the research made by The Swedish Research Institute of Tourism (2003), commissioned by Malmö City. The figures applied are on the basis of the questionnaire made during the event. (See Ap-pendix 3)
The event lasted for a whole week and personal interviews were made by, The Swedish Re-search Institute of Tourism, experienced interviewers.
414 people were interviewed of which 99 did not want to answer and constitutes reduction. There were 315 carried out interviews, which results in a qualitative basis for the analysis of the results. 76 percent answer frequency is normal compared to similar events.
Visitor type- The majority of visitors were women, 77 percent compared to 23 percent men. The share of women was higher among Swedes than international visitors 80 percent compared to 65 percent. 76 percent of the figure skating visitors were from Sweden of which 21 percent from Malmö region and remaining 55 percent from other regions. 7 per-cent of the visitors came from the Nordic countries and 16 perper-cent from other countries in Europe.
Who visit the European Championships in Malmö city? 26 percent had visited the European championships in figure skating before whereas 73 percent had not. From 26 percent 14 percent were Swedes and 63 percent were abroad visitors. 97 percent of the visi-tors were in Malmö with European Championship as purpose.
Transportation- Out of all the visitors barley 50 percent came to Malmö city by car out of the Swedish visitors and 26 percent by train and 15 percent by bus. 50 percent of the abroad visitors came to Malmö city by plane and 25 percent by car and 14 percent by train and 7 percent by ferry.
Guest nights- 59 percent of all the visitors stayed the night within Malmö city region among the Swedish tourist 55 percent stayed the night and 69 percent of the abroad visi-tors stayed the night. 62 percent stayed in hotels, 21 percent with family and friends and 13 percent stayed in youth hostel. The average lengths of stay were three days and two nights irrespective of purpose.
4.2 Multiplier analysis
The Primary effects: The European Championships is attracting 34 700 numbers of visi-tors, although this number might not be exactly correct as it is based on the numbers of
tickets sold and not on the actual numbers of visitors. The figures used are based on the investigation made by The Swedish Research Institute of Tourism (2003). The contribution of the International Skating Union were amounted to 18 176 375kr and sponsor money were amounted to 700 000kr. SUM: 18 176 375+ 700 000= 18 876 375SEK
Secondary effects Calculates the Effects on the event organisation The budget of the event is based on estimated revenues 34 790 375kr and the costs of a similar amount. The in-come side is dominated by:
Preparation cost 18 176 375SEK
Advertising, PR 700 000SEK
Hotel Income 2 904 000SEK
Ticket sales 2 904 000SEK
Sales 1 400 000SEK
Lottery 525 000SEK
Remaining 600 000SEK
Price money 4 685 000SEK
SUM: 34 790 375SEK
Table 1: Secondary effects, revenues of the event budget
Rent 1 180 000SEK
VAT 1 452 730SEK
Social Fees 229 600SEK
Marketing 1 000 000SEK
Printed matter 1 100 000SEK
Purchase 810 000SEK
Transportation 315 000SEK
Accommodation 1 034 000SEK
Entertainment 941 000SEK
Employment cost 3 280 000SEK
Replacement cost 2 601 800SEK
Fees 4 500 000SEK
Remaining 2 320 897.25SEK
Sum 19 790 027.25SEK
The effect on the tourism industry are great and amounted to 83 400 000SEK. This result is not used in the calculations for the financial effects on the public sector, but this effect is interesting when analyzing the overall economic effect, as this figure includes income irre-spective of sector it could be money that generates income both for the public sector and the private sector. Although, we assume that this amount mainly generate income for the private sector, but further investigation needs to be done to get the true figure.
The effects on the tourism industry are great. Revenues carried out through tourist inflow caused by the event are calculated to 83 400 000SEK including expected increase from the abroad tourists. This figure is calculated by The Swedish research Institute of Tourism, 2003 and is based on the following calculations. The International tourists are expected to reach 39 400 000SEK, which corresponds to 33 312 guest- nights. The national tourist is expected to reach 43 600 000SEK, which corresponds to 38 170 guest- nights. Since the number of tourist beds in Malmö city is limited, one should expect considerable displace-ment- effects and high opportunity costs during peak periods in the tourist industry.
There will be public sector effects that are not covered by the event budget, such as: police work and customs service. This is amounted to 200 000 security + 315 000 transports + Medical care 490 000 + 50 000 doping = 1 055 000SEK. The departments involved will face change in activities and some overtime work. There might also be an increase in health care services. These extra activities will be covered by extra revenues.
The opportunity cost Defined as “the revenue form the best alternative use of the re-sources utilized” In the case of a small event analyses the effect could be that the rere-sources used would otherwise have been unused. Examples of this are when free capacity in hotels and restaurants are used or an otherwise empty sports stadium is used, in these cases the opportunity cost will be very low (Mossberg, 2000).
In this thesis we have assumed that the opportunity cost is equal to zero, the reason for this is because the investigation used as the basis for this thesis is based on that 97 percent of the visitors are in Malmö City for the purpose of The European Championships in Fig-ure Skating and since the period of time the event is held is not a peak period, the oppor-tunity cost is low and are of little interest. However, the assumption of zero opporoppor-tunity cost is in reality not true as hotels and restaurant probably is of some use without the event. As the indirect effect is the difference between the direct effects and the opportunity cost and the opportunity cost of the event is equal to zero, we need to calculate the indirect ef-fect through looking at the spending pattern per person and day, carried out by The Swed-ish Research Institute of Tourism (2003). We can assume that the money spent by all visi-tors would have been zero if there were no European Championships in Figure Skating, this because of the fact that 97 percent of all people participating in the investigation made, were in Malmö City for the purpose of visiting the European Championships in Figure Skating.
All visitors Swedish Visitors Abroad visitors
Lodging 217SEK 146SEK 383SEK
Restaurants 146SEK 152SEK 165SEK
Pleasure 23SEK 18SEK 34SEK
Shopping 125SEK 117SEK 147SEK
Transportation 18SEK 14SEK 34SEK
Entrance 294SEK 292SEK 299SEK
Groceries 18SEK 18SEK 18SEK
Gasoline 15SEK 13SEK 20SEK
Parking 2SEK 13SEK 20SEK
Remaining 5SEK 5SEK 6SEK
Sum 873SEK 778SEK 1100SEK
Table 3: Spending pattern per person and day (The Swedish Research Institute of Tourism, 2003)
Indirect effects could be explained through using Keynes (1933) type of multiplier analysis. The investigation made by The Swedish Research Institute of tourism calculated the spend-ing pattern per person and per day durspend-ing The European Championships in Malmö City 2003. If 873SEK were to be put into the model of showing the multiplier way through the economy with a multiplier effect of 1.8 it will turn out as below.
Visitors in the Region
873kr 174,6kr
Event industry
Producer
Taxes69,75kr 436,7kr 87,3kr 174,6kr 698,4kr 349kr
Import
Consumers
87,3kr
87,3kr 43,65kr
Saving
The model shows the path through the economy of an injection of 873kr and how it gen-erates both income and tax ground. Some part of the money goes to saving and some of it disappears out from the region by expenses for import. When analyzing the effect of visi-tor’s expenses on products and services within the region it is referred to as the multiplier effect. (Klaesson, 2005)
When comparing the direct secondary effect and the opportunity cost we can clarify the amount that represents an increase spent in a region and what amount that only represents a change in the use of these contributions from one activity to another. The net increase in the funds is the only thing that is to be taken into account when calculating the indirect ef-fect. (Andersson et al, 2000)
By using the amount spent per visitor and day the indirect secondary effects are calculated with the assumption that without the event, spending per person would have been equal to zero, the result of the calculations gives us the indirect secondary effect, which represents the increase of spending within the region. When calculating the indirect secondary effect a Keynes (1933) type of multiplier is used, this type of multiplier assumes a marginal propen-sity to consume and is to be valid for the whole economy. To analyze an event the marginal approach seems appropriate, but less precise when assuming the same marginal effects for the tourism industry as for any other part of the economy (Andersson et al, 2000). The size of the multiplier that is used in the calculations is 30% as it is the size normally used for re-gions in Sweden. By using this method we can see that 873SEK spent by each visitor gen-erates an effect of 1 135SEK on the gross national product (GNP). These numbers are then used to calculate the actual income of all visitors to the municipality.
As mentioned above we assume that the money spent by each visitor would have been zero if there were no event and therefore the total indirect effect will be as below.
The total secondary indirect effect when using the Keynes (1933) type of multiplier would be:
Multiplier effect:
873*1.3= 1135SEK
Total Indirect effect:
1135* 34 700= 39 384 500SEK
Table 4: calculation of the multiplier used 1.4
In the next step we are to calculate the tertiary effects and to enable us to do that some fig-ures needs to be assumed. The expenses from salaries and wages come from the budget made by the event organisation. The gross profit is an estimated figure as we assume the cost for the event to be the same as the revenues for the event organisation, by taking away the cost from the direct secondary effect and the import we get an approximate figure of what might be the gross profit. The indirect taxes are the sum of VAT paid by the event organisation and is calculated according to Swedish fixed VAT rates of 6%, 12% and 25%, depending on industry. Import is calculated through the assumption of that some of the amount spent by each visitor goes to import and this is assumed to be 10%.
Value added among the four primary input factors salaries and Wages, gross profit, Indirect taxes (e.g VAT) and Import (are of greatest importance to the public sector). These four
“basic economic elements” (Andersson, 1999) constitute the tax base and are treated dif-ferently in different countries. Thus the tax effect for the public sector will vary between countries according to tax legislation and other institutional arrangements prevailing in each country. (Andersson et al, 2000)
Hypothetical Swedish tax rates applied to the “four basic economic elements” (Andersson et al, 2000)
Gross Wages Gross Profit Indirect tax Import
Local tax 21% 0% 0% 0
Social Security fees
31% 0% 0% 0%
State tax 7% 6% 100% 0%
Table 5: Percentages of the primary input factors
In the budget made by the event organisation expenses for salaries and wages amounted to 3 280 000SEK.. The estimated gross profit is 39 384 500SEK. The indirect tax is the VAT of all incomes. The import is calculated through the estimated value of 10 percent of the indirect effects caused by the visitors spending patterns.
Salaries and Wages 3 280 000SEK
Gross Profit 39 384 500SEK
Indirect taxes 1 452 730SEK
Import 3 938 450SEK
Table 6: Value added of the four primary input factors
Gross Wages SUM: 1 935 200SEK
Gross Profit SUM: 2 756 915SEK
Indirect tax SUM: 1 452 730SEK
Public revenue SUM: 5 915 245SEK
Table 7: Calculations of Value added
As The European Championships in Malmö City 2003 is an event of little scale. There will probably be no long term savings from reduced unemployment, but probably some short term savings. When using figures carried out from USK (a separate investigations and sta-tistical bureau belonging to the city of Stockholm) we might be able to bring about an ap-proximate number of the savings. The average cost, net of taxes and social security fees, for unemployed people is estimated to be 99 000SEK per man- year of unemployment.
We can assume that 200 were employed due to the event and that it had no long term ef-fect, this will cause savings from reduced employment equal to: 8 250 * 200= 1 650 000SEK. We assume that the short term effect will last for a month as there will be work that has to be done before and after the event.
The effects on the public sector are calculated on the basis of three types of economic ef-fects:
• “Direct secondary effects such as extra costs and/or revenue for public services;
• Tertiary effects in terms of increased tax revenues and social security fees; and
• Savings due to reduced unemployment payments and other kinds of support.” (Andersson & Samuelson, 2000)
The case study is based on figures found from the investigation made by The Swedish Re-search Institute of Tourism (2003), many figures necessary for the study are available, but some figures are assumed causing the discussion to be hypothetical with the main goal of to illustrate a useful model and an understanding of the possible effects which enables analysis of the economic effects of the municipality of Malmö City.
Financial effects of the public sector Direct Secondary effect
Direct secondary effect - 1 055 000SEK Tertiary effects
Local tax 688 800SEK
Social Security fees 1 016 800SEK
State tax 4 209 645SEK
Savings from the reduced unemployment 1 650 000SEK
Total effects on the public sector 6 510 245SEK Table 8: Financial effects on the public sector
The public revenue is calculated to be 6 510 245SEK , however this figure is not of true nature as most of the figures in the calculations are assumed, but it gives us the channels from were the public can get its tax revenue. The savings from reduced unemployment is amounted to 1 650 000SEK this figure comes from pure assumption as there are no in-formation available to calculate this figure. However, as it is an event of small scale we draw the conclusion that savings of reduced unemployment have no long term effect, but only short term effect for one month. The total financial effects on the public sector is amounted to 6 510 245SEK which is a positive result, even if the savings from reduced
employment were to be taken away, as it might not be existing, the result would be posi-tive. The positive hypothetical result allows us to draw the conclusion that the event re-sulted in an increase of the welfare in the society without decreasing the welfare for some-one else.
4.3 Braunerhielm and Andersson (2007)
The Income from The European Championships in Figure Skating in Malmö City 2003 are calculated by plugging in figures into the first table suggested by Braunerhielm and Anders-son (2007) named R7.
The numbers in the table are taken from the budget made by the event association. The to-tal income of the event is calculated to be 34 810 375SEK. The figures are placed in the ta-ble labelled R7, which is the first step suggested by Braunerhielm and Andersson (2007), when evaluating the economic impacts of events. (Appendix 3, R7)
The Income generated from the event are contributions both from the public sector, pri-vate sector and the associations, compared to the multiplier analysis the method divide the incomes amongst the public sector, private sector and the association causing the income portion to differ amongst the sectors causing the income effect to be more dominant in some sectors and this results in an outcome that not necessarily generate positive income effects from the event.
The figures placed in the table for expenses is also taken from the budget made by the event association and the expenses were calculated to 20 690 027.5SEK. The figures are placed in the table labeled R8 suggested by Braunerhielm and Anderson (2007), to use when evaluating events (Appendix 3, R8).
The expenses caused by the event is treated the same as for the income the expenses por-tion is divided up into categories amongst the private sector, public sector and the associa-tion causing the actual profit to differ. Compared to the multiplier analysis this method does not assume that everyone receives the same psotitve or negative economic effect from the event. As stated above the profit portion depends on how much income is generated minus the outcome. The profit amongst the different sectors is then taxed differently ac-cording to the tax regulations in different countries causing the effect to the public sector to differs compared to the multiplier analysis where the whole profit generated from the event is divided into different tax income categories where it is treated the same.
Income generated to the region from The European Championships in Figure skating in Malmö City 2003. These figures are based on the research made by The Swedish Research Institute of Tourism (2003) as Braunerhielm and Andersson (2007) suggest that this table labeled R9 should be on the basis of a visitor profile. The region in this case will be the municipality as the income generated is only to the municipality of Malmö City and not the region. The income generated to the municipality of Malmö City is calculated to 36 667 500SEK (Appendix 3, R9).
The figure is the total income generated from all the sectors, which again is not assumed to be the positive effect for the whole municipality as the income differs amongst the private
In the report made by Braunerhielm and Andersson (2007) they have an example on Scadevi Cup, on how to calculate the economic effects of an the event with the guidance of their suggested model. This example is using a table to summarize the effects, which is shown below, with figures taken from the tables R7, R8 and R9 (Appendix, 3).
Distribution of Income generated to Malmö City
The State 11 000 250SEK (30%)
Region 3 666 750SEK (10%)
Malmö City 7 333 500SEK (20%)
Private Sector 14 667 000SEK (40%)
SUM 36 667 500SEK (100%)
Table 9: Distribution of Income generated to Malmö City
The table shows how the income is divided among the different sectors and how the method does not assume that all sectors gain the same profit from the event and and does not assume the same thing as the multiplier analysis, that the income generated from the event is purely tax income that can be reinvested in favour to the public in the municipal-ity, but rather shows that the effect is positive, but the portion of profit from the event dif-fers and reinvested money do not necessarily have to favour the whole public living in the municipality.
5 Analysis
The two methods have now been introduced and two different outcomes of the economic effects of events have been noticed. It is now time for this thesis research question to be answered what are the differences in the outcome of an event depending on the choice of method to be used for evaluation? And what method is the most appropri-ate one to use in terms of evaluating the economic effects of a sport event
Two methods have been used and one of them is the traditional multiplier analysis and the second method is an analysis suggested by Braunerhilem and Andersson (2007).
This thesis is written as a case study to enable an application of the two methods. The fig-ures used in the calculations are taken from the research made by The Swedish Research Institute of Tourism (2003) and the budget of the event association. Many figures in this thesis are made upon assumptions to enable a proper application of the two methods, caus-ing the results to be purely hypothetical. However, the thesis is not written for the purpose of getting a true result of this particular event, but for the purpose of highlight the most appropriate method to be used when evaluating the economic effects of events
The case study for this thesis is The European Championships in Figure Skating in Malmö City 2003. This is an event that is viewed as a minor event, but studies of all types of differ-ent evdiffer-ents are of great means for this thesis. In earlier studies differdiffer-ent methods have been used to evaluate the effects of events and there are no standardized method, therefore the
results are dissimilar and complex to interpret and to compare whether the use of different methods is the reason for the diverse type of results or if the methods used needs to differ because of the diverse nature of the events. Overall the most common result of events are that they generate positive economic effects for areas involved except for the Spilling (2000) that evaluated OS in Lillehammer 1994 to be a non profitable event and that huge public funding of the event saved it from turning out negative, but was the public funding in this case just and expense that could have been used for a better purpose.
Braunerhielm and Andersson (2007) state the purpose of their model as following:
By studying the flow of capital to and from the athlete associations, the purpose of estimat-ing the role of sport events on a local, regional, national and international level is possible. When the association’s income and expenses are traced to different private and public ac-tors it enables us to view the association’s economical network. If the local association con-tributes more to the municipality than what it takes the result for the municipality is posi-tive. Money from national and international sponsors and contributions and visitors passes through the athlete association and further out to the public and private sector by the pur-chase of goods and services, rent and taxes, these things generates income for the munici-pality. This purpose is the same for the model used by Andersson and Samuelsson (2000), and this indicates that the two models want to find out the same thing, but an appropriate approach has not yet been found. In the introduction section it also stated in the problem discussion that it is the complexity of the existing methods that is the problem for the mu-nicipalities, when it comes to persuading the public about why event should be financed with public funding.
In Andersson and Samuelsson study in (2000) there are some discussed impact variables these variables are of importance for the method of Braunerhielm and Andersson (2007) as they are mentioned in their report as the basis for the new simplified method. However, the important part that differ the methods from each other is the approach they use to cal-culate the figures of the impact variables and how the generated income are estimated. The below table shows the different results from the two methods:
Number of visitors: 34 700
Multiplier Analysis Braunerhielm & Andersson (2007)
Profit
Secondary Indirect effect 39 845 000SEK 36 667 500SEK
Local tax 688 800SEK 3 666 750SEK
Social Security Fees -1 016 800SEK X
State Tax 4 209 645SEK 11 000 250SEK
Public Sector 6 510 245SEK 6 775 000SEK
Malmö City X 7 333 500SEK
Private Sector X 14 667 000SEK
The figures in the Braunerhielm & Andersson method concerning tax income is just a per-centage share of the total income where the tax effect is not yet calculated, but rather just how much of the income that should be taxed according to the areas tax policies, whereas the calculated figures in the multiplier analysis is the generated tax income to each area, therefore these figures are not perfectly comparable. The multiplier analysis is based on the tax income that is generated from the event that is assumed to be reinvested in favour to the public whereas the Braunerhielm & Andersson method calculates the sum of the in-come from different sectors and then divide them up into portions to highlight the fact that areas involved are not affected in the same way through out the event and therefore the profit do not necessarily have to generate positive economic effects to the event. We will follow the impact variable figure to see similarities and differences with the two methods.
The first variable is the primary effect and is calculated and treated the same in the two dif-ferent methods as it is the number of visitors, which is equal to 34 700. The second vari-able is the secondary effects, which is treated as an expense in the both methods, but ef-fects differents areas as the multiplier analysis treats it as an expense for the municipality whereas the Braunerhielm and Andersson (2007) method treats it as an expense for the event budget and again this will in the end result in different economic impacts in terms who will generate from the profit generated by the event and from what channels. The third variable is the secondary indirect effect and in the multiplier analysis the total indirect effect is 39 845 000SEK and in the Braunerhielm and Andersson (2007) the indirect effect is 36 667 500SEK. If we were to multiply the total generated income in the Braunerhielm and Andersson (2007) method with our multiplier of 1.3 we would get a result of: 39 033 750SEK, which brings us closer to the result we got in the multiplier analysis. How-ever the result may seems like they are closely related as they are almost the same, but the difference is that the result does not end up having the same effect for the public as the Braunerhielm and Andersson (2007) method suggests that result should be divided up amongst the private sector, the public sector and the event organization causing the eco-nomic impact of the event to the public to turn out differently as there are guarantee that the profit generated from the event is reinvested in favour for the public in the municipal-ity due to the different tax policies used within the different areas, whereas in the multiplier analysis the generated profit is seen as the basis tax income that will be reinvested in the fa-vour of the public.
The tertiary effects differ amongst the two different methods in the multiplier analysis we want to calculate the total financial effects on the public sector. The result we get terms of income generated from taxes, which are amounted to: 6 510 245SEK. This result could be interpreted as the revenue from taxes that can be reinvested in the municipality for exam-ple building of new roads and schools. In the multiplier analysis tax income from the pri-vate sector is not calculated and the taxes are calculated through applying suggested tax policies by Andersson (2000) and treat the profit as pure economic income to the public sector. In the Braunerhielm and Andersson (2007) method the sum of the generated in-come of the public sector is amounted to 6 775 000SEK, which is calculated through add-ing factors in the method that is calculated through income generated to the public, but if we then calculate the sum of income generated after tax it is added up to 7 333 500, which is greater than in the multiplier analysis and this is due to the multiplier effect that has been added to the total income result causing greater income effects to the municipality.
To summarize the two different results that is gathered by applying these two different methods. The multiplier analysis calculate the more exact figure on the income generated
from taxes, where the aim is to show how much money that is generated through the event in terms of tax income that could be reinvested in other areas of the municipality. The Braunerhielm and Andersson (2007) method shows the total economic effect of the whole municipality as the income generated in their calculations also involves the generated in-come to the private sector causing the result not to be appropriate to use when promoting public funding of event as it can not guaranteed that money earned are reinvested in favour of the public.
So what is the answer to the research question? After the use of the two different methods I have realized that the most appropriate method to use when evaluating the economic ef-fects of events are both of them. The multiplier analysis is very complex, but it is more ap-propriate when evaluating the economic effects in terms of tax revenues of large events as it is focused on the a bigger perspective and can be used when evaluating the effect for a whole country. The gained income is of great use when promoting the public funding of event as the generated income can be used for building new schools or roads The new simplified method by Braunerhielm and Andersson (2007) is more appropriate for small athlete organisations that arrange repeating events and want to hold an continuous record of the economic effects of events for the purpose of promote their existence for the mu-nicipality and get public funding to arrange events and by that gain income by increased in-terest for their association and highlight the benefits to different sectors generated from the event.
It has been discussed whether event is a collective good or a excludability good, however if the calculations focuses on the tax expenses followed by tax income from an event it could be seen as a good that can not be excluded by inhabitants not directly involved and there-fore an individuals welfare function consists of utilities equal to profit maximized events, where the tax income is reinvested in goods consumed by all inhabitants.
6 Conclusion
Two different methods two different results, but all results are not comparable as one of the methods shows the total financial effects of the public income in terms of tax revenue and one that shows the total income for all sectors. What method that is to be used de-pends on the size of the event and the purpose of the evaluation.
The similarities with the two methods is that their aim is to acknowledge a general method to be used when evaluating the economic effects of events, but the two methods leaves us with two different results that focuses on two different effects, what effect that is to be considered as the most important one depends on the context.
I would say that the multiplier analysis provide us with a good result that is of best use, when a municipality needs to calculate the effects of events to se what events that generates most income so that it enables them to promote the public funding to the public, while the Braunerhielm and Andersson (2007) method is of best use by athlete associations to per-suade municipalities that public funding of their particular event will generate income for the whole municipality, both in the public and in the private sector.
come both for them and for the municipality, whereas the multiplier analysis can promote these public fundings.
The final conclusion is that both methods could be use in terms of wanting to analyze the economic effects of events, but considering the problem discussion the public funding of events the focus should be on the overall public economic effects rather then overall eco-nomic effects of all sectors, as these profit incomes can not be guaranteed to be reinvested in favour of the public sector and the positive result can not therefore be used when pro-moting the public funding of events whereas the multiplier analysis focuses on the tax in-come that positively effects the public sector irrespective of involvement directly to the event.
6.1 Problems
Both methods requires different information for application, so only large events can be analyzed by the use of the two methods since it is time consuming and costly to use both for every event held. The actual tax revenue caused from the event is rarely highlighted so the public has little knowledge of the events actual economic effects and what the revenue contributes to the municipality in terms of investment elsewhere.
6.2 Suggestion for further research
The tax revenue gained from the event is reinvested elsewhere in the municipality, but where? The answer to this question is a good complement to the calculations outcome as it highlights the positive economic effects from the event to the public more clearly.
References
Literature
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Appendix 1
A multiplier analysis is a traditional method often used to calculate local and regional eco-nomic effects of events. The main direct value of the tourist industry is the demand that arise from extern source so called export. The direct effects of visitor’s expenses depend on the distribution of income which depends on the demand.
Klaesson (2005) shows in his paper the path through the economy of an injection of 1000kr and how it generates both income and tax ground. Some part of the money goes to saving and some of it disappears out from the region by expenses for import. When analyz-ing the effect of visitor’s expenses on products and services within the region it is referred to as the multiplier effect.
Klaesson (2005) show the multiplier effect in a figure when the multiplier effect is ap-proximately 1.8.
Visitors in the Region
1000kr
200kr
Event industry
Producer
Taxes250kr 500kr 100kr 200kr 800k 400k 200kr
Import Consumers
100kr
100kr 50kr
Savings
The size of the multiplier depends on the size of the region that is to be investigated. The smaller the region is the greater the import to the region will be which cause a small multi-plier. If a region has multiplier of 1, 3 expenses from visitors of 1000kr will result in a Gross National Product (GNP) of 1300kr. The multiplier transforms future demand in-crease into future income to the region. This could be described through following equa-tion: (Klaesson, 2005)
∆Y= k*(∆E)
In the equation ∆Y is the change in income (GNP), ∆E is the change in aggregate demand and k is the regional multiplier. In this case the multiplier is 1, 3, which means that it will be a 30 percent income increase, which is bigger than the original demand increase. The bigger the multiplier the bigger the impulse effect on the regional economy. The multiplier comes from Keynes expression for income and aggregate demand. The definition of the expres-sion is: (Klaesson, 2005)
k= 1 1 – (C-m) (1-t)
c= is the marginal propensity to consume m= is the marginal propensity to import t= tax
C, m and t affects the multiplier. If the propensity to consume is high it means that in-creased income goes to consumption instead of saving which cause a higher multiplier. De-creased propensity to import means that a larger share of inDe-creased income goes to con-sumption of region produced products. (Klaesson, 2005)
Appendix2
The below table is the Leontief´s input- output table in general terms:
Table 2.3: A basic input- output transaction table (Fletcher, 1989)
Industry Final demand
Industry (1) (2) (3)…………(m-1)(m) Households Investments Govmnt Ex-ports Industry (1) a11 a12 a13………. a1m-1a1m c1H c1I c1G c 1E Industry (2) a21 a22 a23………. a2m-1a2m c2H c2I c2G c 2E Industry (3) a31 a32 a33………. A3m-1a3m c3H c3I c3G c 3E ….. … … ………. … … ……… …. … …. ….. … … ………. … … ……… …. … …. ….. … … ………. … … ……… …. … …. Industry (m-1)… …. ……… …. … … . Industry (m) am1 am2 am3……….Amm-1amm cmH cmI cogs c mE Wages & VW1 VW2 VW3………… VWm-1vWm uWH uWI uWG u WE Salaries Gross Profit VP1 VP2 VP3………. …VPm-1vPm uPH uPI uPG u PE Taxes VT1 VT2 VT3………. …VTm-1vTm uTH uTI uTG u TE Imports VI1 VI2 VI3………. …...VIm-1vIm uIH uII uIG u IE
The input- output table can be divided into four matrices: 3 A (aij)
4 V (vij) 5 C (cij) 6 U (uij)
“A is a description of the inter- industry transaction and this matrix A is used to calculate the indirect effects and the Leontief type of multipliers. The Leontief inverse (I-A) -1 is the technique used.” (Anderson and Samuelson, 2000)
