Modeling different scenarios for a tax increase

I am setting up a model to estimate the impact of higher taxes on wealthy individuals within a state. I have estimates of the tax revenues that will be generated and was going to model this as a reduction in household income for those with incomes above $200k (which is the group that will be taxed). If the tax revenues generated go to local education and/or local government, is it better to use industry change or industry spending pattern? When I run the numbers it appears that the high-level results (employment, output, etc.) are the same but the mix of direct/indirect/induced changes. What is the difference in these two activity types and which would be better for this application? In another scenario, I want to estimate the impact of some of the higher tax revenues going towards a lowering of local property taxes (in the event that municipalities pass through the higher revenues into lower property taxes). What would be the best way to model this? Thank you for your insights.
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  • Hello Paul, You can utilize a Household Spending Pattern to measure the impact of reduced spending by the 200k+ Household category. The activity level for the Household Spending Pattern should equal the reduction in Household Income less a portion for savings (high income households have higher savings rates than lower income households and likely some of what is now increased tax revenue would have previously been sent to savings instead of spent).  Activities > Activity Options > Import > Institution Spending Pattern > Households 200K+ Without seeing the model and how the activities are set, it's not possible to comment directly as to why your split between Direct, Indirect, and Induced varies. That said, results will be different between an Industry Change activity and an Industry Spending Pattern because the two begin the analysis at different parts of the process. Using an Industry Spending Pattern starts your analysis at the first wave of Indirect effects (the imported spending pattern represents the industry's purchases of goods and services: Indirect Expenditures). Unlike the Industry Change activity type, the industry spending pattern will not capture the industry's labor costs; for that you will need to include a Labor Income Change. In any case, we would not recommend either of those Activity Types for the government spending portion of the analysis unless you know exactly how the tax revenues are going to be spent (i.e., they will be spent on certain local industries/commodities). However, if you are not sure exactly how the tax revenue will be spent, you can utilize an Institution Spending Pattern for State/Local Government. See the link below for more information. Working with Government Institution Spending Patterns   Lower property taxes would presumably result in a loss of tax revenue, which could be run similar to the above positive revenues, just as a negative. Regards, IMPLAN Staff

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