Modeling tax payments

ebowen

March 06, 2018 16:29

I'm modeling the impact of a local business, and they have given us fairly detailed expenditure data that breaks down various categories of spending, including that for state and local tax payments. I've modeled everything except the tax payments on a commodity basis. But my question is what is the best way to model the tax payments?

My first thought was to just ignore these payments as they didn't seem like a direct impact in the local economy as they are taxed away by the government. My understanding is that IMPLAN generally treats tax payments as "leakage" outside the model. Is this the case?

However, the tax payments do result in government spending, which does have an impact in the state and local economy. So I was thinking about including an activity with an institutional spending pattern for state and local government.

Either way, I'm including the taxes paid in the total direct output, I just don't know if they should also produce induced effects from government spending. What is your recommendation?

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Official comment

Radha
March 08, 2018 19:30

Hi Eric,

Thank you for your post.

You should find out exactly which government entities will receive the payment. Once you have identified the government groups receiving the tax – you should import that Institution Spending Pattern (S&L Gov’t Education, S&L Gov’t Non-Education, etc) and adjust the Activity Level to be the tax amount going to that institution. These Spending Patterns include Labor as Events as the very last Events (notice sum of events is 1 when for these SPs), so that is all you have to do!

If you will be accounting for the tax impact as its own Activity, then you might not want it to be reflected in the other Activity’s Direct Output (or at least note if it is two place).

Hope this helps and let us know if you have any additional questions.

Thank you,

Radha

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