Substitution Effects

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    IMPLAN Support
    Hi Mark. In response to your Forum Post, IMPLAN normally recommends that users should not include the spending by local tourists in evaluating the impact of events like these. You should divide the tourists into: local tourists and non-local tourists for the very reason you state in your post. Spending by local tourist is often viewed as not adding to the local economy. Including spending by this group would overestimate the target area impact, because locals are likely spending money that they would spend somewhere else in the local economy if the event had not occurred. And yes you are thinking about this in the right way. There are two ways to account for this. First, if you know how much of the total tourism spending was made by local tourists, you could simple not include those expenditures in your model. However, you would still want to calculate the sales tax revenues associated with their spending, since they would very likely pay taxes on even local purchases associated with the tourism event. Second, you could let the IMPLAN model handle this by simply setting the LPP to your estimate of how much of the tourism spending was made by non-local tourists. This way you could enter the total tourism spending and the model, through the LPP you set, will remove the local spending before running the impact. The LPP approach simply determines how much of the direct effect (tourism spending) to apply in the model. We hope this addresses your question.
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    mkanazaw
    Thank you for your very helpful reply. Regarding the sales tax revenues, I presume the correct interpretation would be the tax impact of the event itself, as opposed to the overall tax implications for the target area, since any substitutions might lead to lowered expenditures, and therefore lowered taxes, elsewhere. Does this seem right?
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    IMPLAN Support
    You are exactly right. This is due to the linearity of IMPLAN - i.e., no behavioral changes. Tax impact values show the amount of revenue generated for governments from Employee Compensation, Proprietor Income, Tax on Production and Imports, Households, and Corporations based on the modeled impact associated with your particular event. The total tax collection associated with your event is the sum of State & Local Government and Federal taxes in the study region. IMPLAN, unfortunately does not determine any substitution or reduced spending effects and whether these effects will result in lower tax collections elsewhere in the region. Please let us know if we can be of further help to you.
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