Analysis by parts

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7 comments

  • Official comment
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    Brian Barlow

    Hello and thank you for reaching out to IMPLAN. 

    By default, tax in IMPLAN is assumed to not create any additional impacts. It is only displayed as a direct effect (when modeling an Industry Change), so in a sense, it is treated as a leakage. If you have a general idea of how the taxes will be used, you can model it in that way. 

    Do you have any breakdown of where the taxes paid will go in terms of specific investment or even generally a breakout of how much will be paid to the State and Local Government versus Federal Government? What is your Study Region?

    Thank you!

  • Avatar
    dahalram

    Hi, 

    We are doing a case study of different power plants across the eastern US and trying to estimate local economic impact. we are selecting powerplants that burns wood and our study area will be the counties from which wood will be procured. We have contacted the plant and have information about their annual expenditure on various categories as wages, wood purchased, tax paid (as emission fee, property tax, registration and license, county and state taxes), chemicals purchased, insurance, and many more. I believe these taxes are paid as state/local government non-education tax and I am not sure, how I to use these tax expenditure information into my model.

    Thank you.

  • Avatar
    Brian Barlow

    Hello,

    If you are comfortable assuming the taxes are paid to State & Local Government Non-Education, then you can select "Import" on the Activities and Events page and pick "Institution Spending Patterns" then select "State/Local Govt Non-Education". The Activity Level on the imported Spending Pattern should be edited to be the value of the taxes paid by the power plant. Instructions can also found here for IMPLAN Pro.

    However, please note that since you are not using the State model, you may want to reduce the tax value since some of the taxes will likely be used in counties in the State that aren't part of the study region. When this Activity is modeled, the full amount entered as the Activity Level will be assumed to be invested in the Study Region. Determining what portion of the taxes paid will stay in the region is something you'd have to do as we don't have access to any additional sources for this sort of information, but we can make some suggestions if you get stuck on this. Please just let us know. 

    Thank you!

  • Avatar
    dahalram

    Hello,
    Thank you for the additional information. I agree with you regarding some of the taxes money might be used in the counties outside of my study region. I am also curious if I import institutional spending pattern, whole 536 sectors will be imported and selecting specific sectors will be challenging (taxes paid are described as emission tax, registration and license, property tax,and county and State taxes ). Which sectors do you suggest to include for these type of taxes.?
    Also, for other expenditure information (except employee compensation) shall I use industry change or industry spending pattern. I know they work differently and each has their own assumptions. Which one do you think will be the best option.
    Thank you!

  • Avatar
    Brian Barlow

    Hello,

    Determining how to model taxes paid should be determined by how the collected taxes will be used. Knowing who collects the emission tax and registration, license and property tax and how they will spend the collected tax is necessary to model the impact of taxes paid/tax revenue. Whatever tax amount will go on to be used by the state and local govt for noneducation purposes should be run through the imported Institution Spending Pattern for S&L govt noneducation as the Activity Level. This imported spending pattern will just be a grouping of all commodities that typically get purchased by State & Local Govt for noneducation purposes.

    Tax revenue from, say, license fees is not connected to subsequent government expenditure on a specific industry in any way, nor would be property taxes or any other tax. Such connections will need to be decided upon by you as the analyst using regional knowledge. For example, a county may place property tax on a new manufacturing plant, the funds of which may go directly to the restoration and preservation of public lands, but you would need to know such information to go on and model this tax revenue as a spend on the appropriate sectors. We do have more specific State & Local Govt by program Spending Patterns, such as operations of a police department if you are able to identify more specifically where these taxes paid will be used. The general Institution Spending Patterns are ideal for when little is known about how the taxes will be used (meaning you probably don't know enough to make changes to that imported Spending Pattern). 

    As for determining how to appropriately model the other non-labor expenditures, you should be impacting those entire industries: labor, inputs, tax, and profit. If you were to import the Industry Spending Patterns for the given sectors included in the expenditures, you'd only be affecting their input purchases (Intermediate Expenditures). Unlike Institution Spending Patterns, Industry Spending Patterns do not include labor. Therefore, Industry Change is appropriate while a Spending Pattern for the Industry receiving the expenditure is not. It is important to know that when you model the expenditures as Industry Changes, the purchase will be displayed as a Direct Effect in the results. Technically, the power plants overall operations are the Direct Effect and the expenditures the power plant spends on Intermediate Expenditures are first-round Indirect Effects. You can move those numbers into the Indirect Effect manually by exporting and editing the results. Alternatively, to make it so those expenditures appear as Indirect Effects automatically in your results, you could build these expenditures into your own Spending Pattern by selecting the Industry Spending Pattern Activity Type in the New Activity drop-down menu. This will give you a blank Spending Pattern in which each Event added will be a different expenditure. Each expenditure will need to be entered as the coefficient of the total expenditure amount. I'd suggest summing the values of all non-labor, non-tax expenditures (all the purchases to other industries) and calculate the percentage of each one out of the total. Then you can enter this percentage as a decimal/coefficient and specify the corresponding Sector.  Then the total of these industry expenditures would be set as the Activity Level of your custom Spending Pattern.

    Thank you

  • Avatar
    dahalram

    Hello,

    Thank you so much for the additional information. This helps a lot in doing ABP. Using industry spending pattern, direct effects are not populated, as industry spending pattern reflects first round indirect purchases. Direct effects are thus should be calculated outside of the software. And one way to estimate such impact is to use the similar industry that exists in IMPLAN as a proxy. Now my question is what if the sector/industry itself does not exist (as aggregated to other industry). For example, I am estimating the contribution of the wood-burning power plant and IMPLAN do have biomass burning powerplant (#47) but biomass includes many things such as an agricultural byproduct, landfill gas, municipal solid waste and many more in addition to wood. Can we still use 47 as the proxy? Also, if sector 47 is absent in the state model can we use the national model as a proxy? 

  • Avatar
    Brian Barlow

    Hello Again,

    Using the proxy region is a good way to estimate the Direct Effect if no information about the true Direct Effect is known, but in your situation, you've already used a lot of information about the Direct Effect, the power plant's operations, to estimate the Indirect and Induced Effect. With this information, you can estimate your Direct Effect. If you have the overall value of the power plant's production or their gross revenue for the year, this is your Direct Output. If not, you can estimate because you do have components of total output. Output is composed of the following:

    Output = Intermediate Expenditures + Labor Income + Tax on Production and Imports + Other Property Income

    Intermediate Expenditures is the total of all non-labor, non-capital input costs. You have information on several different categories of purchases that are all considered Intermediate Expenditures. Some you've listed are purchases of wood, biomass, chemicals, water, insurance. This should not include the cost of labor or the payment of taxes, because as you can see these are different components of the output equation. The other three components aside from Intermediate Expenditures make up Value Added, so the difference between Value Added and Output should just be the total of all Intermediate Expenditure costs. 

    You also have information on Labor Income. This should be total payroll cost and should match the Labor Income dollars you've run as a Labor Income Change. You also have information on taxes paid. The only Value Added component left is Other Property Income. This is largely corporate profit.

    Notice in IMPLAN's summary results you see just Labor Income, Value Added, and Output (other than Employment) for each Effect. Hopefully, you either have Gross Revenue/Output or Other Property Income. If you do not have Output you can calculate it as a sum of its parts. If you do have Other Property Income, you can simply calculate Value Added as Output - Intermediate Expenditures. If you do not have either, I would suggest using the state or US model as a proxy for the percentage of Output going to Other Property Income. 

    If you do not have Employment, you can also use a proxy region to find the industry's Output-per-Worker. Although sector 47 includes other biomass energy than wood, it is still the most appropriate sector to use as the proxy. For this same reason, it is preferable to rebuild the Direct Effect with the available known information as explained here, as opposed to using a proxy region.

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