Question

In a 2015 report, an economic consulting firm estimated the economic impacts of constructing a new football stadium in Los Angeles. The authors predicted that if LA receives one NFL team, then the stadium investment would result in $281 million per year in direct spending related to the team (team and stadium operations, player salaries etc). The consulting firm then estimates a total of $507 million per year in total economic impact. What implicit assumptions might they have made in their analysis? Provide a brief assessment of the plausibility of their multiplier

Answer 1

Determining the implict assumptions plays an important role. It helps in determining the tax rate to use it as a estimate content in brief. Now we will discuss some of its assumption that helps it to deal with it:-

1. If we see from the sources about 35% additional spending on non locals. About $45 outside the stadium and $25 in game concessions. Around $12 spending on factors like food, travel etc. In year 2019, it is assumed that the total may be increased to more due to new stadium settlement and increase on factors too.

2. Infrastructure , land , parking, sitting, construction everything is calculated under assumption.

3. During construction taxes are effected and it is assumed that the state sales tax intake on building materials will be minimum if public entity tax is in effect.

4.The income tax or the wages of the football player are calculated on the basis of their salary summary.

5.The stadium authority collects taxes like sales tax from the gate receipts and earns certain profit.

6. It is assumed that most of them are local residents. If no NFL team existed then less would like to spend on football entertainment.

7.However, tax revenues are hard to measure on the basis of few factors. The assumption totally depend in the factors like the preference of the entertainer, his willingness to spend etc. Sales tax also affect the number of visitors.

Visitors spending on food, parking, tickets are much taken into account while calculating sales tax. Salaries of personnel NFL team are calculated under state income tax.

Monetary conditions can increase or decrease the multiplers. Under plausibility, multiplier is zero if the target is nominal income or inflation.