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Input-Output Analysis A system of mathematical equations that combines statistical methods and economic theory in an area of economic study called econometrics. Economists use this model(occasionally called an inter-industry model)to measure how many times a dollar is respent in,or"ripples"through,a community before it"leaks out"of the local economy by being spent non-locally(see Leakage below).The model is based on a matrix that tracks the dollar flow among 533 finely detailed industries in each community. It allows researchers to determine the economic impact of local spending by nonprofit arts and cultural organizations on jobs,household income, and government revenue. Leakage The money that community members spend outside of the local economy. This non-local spending has no economic impact within the community. A ballet company purchasing shoes from a non-local manufacturer is an example of leakage. If the shoe company were local,the expenditure would remain within the community and create another round of spending by the shoe company. Multiplier(often called Economic Activity Multiplier) An estimate of the number of times that a dollar changes hands within the community before it leaks out of the community(for example,the theater pays the actor,the actor spends money at the grocery store,the grocery store pays its cashier,and so on). This estimate is quantified as one number by which all expenditures are multiplied. For example, if the arts are a$10 million industry and a multiplier of three is used,then it is estimated that these arts organizations have a total economic impact of$30 million.The convenience of a multiplier is that it is one simple number; its shortcoming,however, is its reliability. Users rarely note that the multiplier is developed by making gross estimates of the industries within the local economy with no allowance for differences in the characteristics of those industries,usually resulting in an overestimation of the economic impact. In contrast,the input-output model employed in Arts& Economic Prosperity 5 is a type of economic analysis tailored specifically to each community and, as such, provides more reliable and specific economic impact results. • Resident Household Income(often called Personal Income) The salaries,wages,and entrepreneurial income residents earn and use to pay for food, mortgages,and other living expenses. It is important to note that resident household income is not just salary. When a business receives money, for example,the owner usually takes a percentage of the profit, resulting in income for the owner. Revenue to Local and State Government Local and state government revenue is not derived exclusively from income, property, sales, and other taxes. It also includes license fees, utility fees, user fees,and filing fees. Local government revenue includes funds to city and county government,schools,and special districts. 26 AMERICANS FOR THE ARTS I Arts&Economic Prosperity 5 �I.Q