Technical Terms Events Calculator

Types of economic impact

Direct impact

This is the impact associated with increased spending directly in each industry associated with the event. For example, if attendees at an event spend $10,000 on accommodation, then turnover in the accommodation industry will increase by $10,000.

Indirect impact

The indirect impacts are the second round of economic effects associated with the direct effect. For example, the $10,000 increase in turnover in the accommodation industry may require accommodation providers to purchase more cleaning products from local wholesalers thus generating economic activity in the wholesale trade industry. The increase in economic activity in industries with linkages to the accommodation industry is an example of the indirect event impact.

Earnings impact

The earnings (or induced) impact arises from increased spending from new employment associated with the event. For example, the increase in demand for accommodation may encourage hotels to take on extra casual staff to cope with the increased number of guests. These extra workers will spend some on their earnings locally, for example at bars, which will induce extra economic activity.

Total impact

The total effect is the sum of direct, indirect and earnings effects.

Definitions of measures of economic impact

Turnover

The total value of goods and services that are produced as a result of the event. Turnover is the same as value of sales or gross output.

GDP

The increase in the value of the goods and services generated in the economy as a result of the event which, when aggregated, totals Gross Domestic Product (GDP). It is the sum of salaries and wages, depreciation, profits and indirect taxes less subsidies.

Household income

The overall increase in household earnings of people in the area as a result of the event.

Employment

The additional employment, expressed as new Full-Time Equivalent (FTE) jobs, generated as a result of the event. Employment is expressed in terms of annual employment. In other words employment is measured in terms of the number of full time positions which last a full year. If the event created 365 jobs for one day of the year this would be equivalent to one annual FTE.

Measuring economic impact using multiplier analysis

The Events Calculator applies multiplier analysis to the estimates of spending at the event to measure the impact of the event on the local economy. Input-output multipliers measure the ripple effects throughout the local economy from an injection of spending into industries related to the event. The multipliers enable us to estimate how economic activity in one industry flows through to other industries and ultimately households.

This appendix provides some methodological background to multiplier analysis and outlines some of its limitations and caveats.

We use proprietary regional multipliers

In undertaking multiplier analysis, Infometrics draws on its own series of regional multipliers. We regionalise national level multipliers using a top-down approach. We have calculated multipliers for 54 industries in each territorial authority and region in New Zealand.

We use partial equilibrium analysis

Partial equilibrium analysis means that the impact of the event is assumed not to have a material impact on the resources used in the regional economy. The key assumption is that the supply of capital, materials and labour can grow to meet the additional demands generated by the event and the flow on multiplier effects without resulting in resource constraints in other industries and therefore displacement of other economic activity. This is generally a sensible assumption if the event is small enough within the regional economy so that any change will only have a marginal effect on the allocation of resources. The application of multiplier analysis also assumes that other activities in the area (e.g. local spending, regular tourism etc) are not displaced or crowded out in the leadup to the event, during the event and immediately following the event.

We assume that the event is not business as usual

By using multiplier analysis in regional economic analysis we assume the event is additional to existing activity and would not have been undertaken anyway. If this is not the case, the resulting economic impact would most likely be lower than that generated by the multiplier analysis.

It is less accurate for smaller regions

As with most types of economic analysis, multiplier analysis can be less accurate for smaller regions. Some regional economies are not as clearly defined as others. In some areas it can be easier to move between regions and participate in more than one economy (e.g. someone could work in Wellington City but spend a large proportion of their income in Upper Hutt City). For regions where people can participate in more than one regional economy, especially smaller ones, the accuracy of multiplier analysis can be diminished.

We assume no slack in the economy

Multiplier analysis assumes that there is no under employment in the area’s economy. If there is slack in an area’s economy, the estimated increase in employment may be overstated.

We ignore spending of locals

Expenditure by local resident attendees is not included in the estimate of regional economic impact because we assume that if the event did not take place, the same level of spending would have occurred on something else. In this sense, the estimate of economic impact is therefore considered to be conservative.

Return on investment should be higher than 1.2 to be worthwhile

If public funds are put towards an event, then the return on investment should ideally be higher than 1.2, at a minimum, for the public funding to be worthwhile in economic terms. This is because the process of raising public funding through tax or rates distorts behaviour in the economy, encouraging people to work or spend differently to how they would otherwise. The Treasury suggests that 20% is a good approximation for this distortionary effect (called the deadweight cost of taxation), and therefore, at a minimum, public investments should return a benefit that is 20% higher than the costs (a return on investment of 1.2).

Use caution when interpreting return on investment

The return on investment estimate is based on an input from the user and may not capture the total cost to the region. Spending may be substituted from other areas, such as attendance fees of local residents and sponsorship from local companies and so the true cost of hosting an event is often higher. The return on investment estimate is intended as a broad guide for councils to assess the benefit of committing council funds to an event and can help compare events on a relative basis.