[b]Question:[/b] We are modeling a household income change scenario in two states – California and Washington. In California our results indicate that the GDP lost would be 1.48 times the amount of the reduction in household income. In Washington, a similar analysis yields a GDP impact of 1.12 times the size of the income reduction. Does this variation in impact between the two states seem plausible? If so, what might account for the difference? [b]Answer: [/b]To model household income change I: 1) Setup Activities>New Activity>Household Income Change; then 2) New Event>10007 75-100k and modeled a $1 million change. The results show only induced effect. By definition all household spending is induced effect. The model runs the 1 million through the SAM to remove taxes and savings, so the first round of induced spending (the direct??) is the amount of the 1 million spent on local goods and services. For CA induced impacts I get VA: .726 million; Output: 1.22 million For WA induced impacts I get VA: .623 million; Output: 1.05 million The multiplier = (direct+Induced)/direct so the output multiplier for CA is 2.22 and WA is 2.05 which is what I would expect considering CA is a much bigger economy (note the US was 2.90). Can household income be a direct effect? Is its direct value, output or value added? Usually, household income results from labor income which is subset of a industry production direct effect. To talk about this I would prefer to tell it as a story - "Households in CA receive 1 million dollars in new income which causes an additional 1.22 million in new CA economic activity along with xxx of new employment and yyy of new labor income". Notice I avoid the issue and don't use the words direct, indirect, induced nor the word multiplier. To answer the question, it is neither, but spending by households are direct effects. However, the local direct spending by households is far less than the total income of households, and analysts are usually faced with the question of "what is the impact $1 million in income by households?". Our best course is to create a regional response to household income which is what the story describes above and not try to create a multiplier. Note: usually, the lower the income class the larger the impact as there is less savings and taxes paid. Note also GDP = VA. See this paper for a discussion of GDP: http://implan.com/V4/index.php?option=com_docman&task=doc_download&gid=136&Itemid=7
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