A User Guide for CAHSEIM: The Culture, Arts, Heritage and Sport Economic Impact Model
Developed by the Policy Research Group, Department of Canadian Heritage
The Culture, Arts, Heritage and Sport Economic Impact Model (CAHSEIM) is a flexible tool that evaluates the economic impacts of arts, culture, sport and heritage organizations, facilities and events within and outside the province or territory where they are located. This includes such organizations and facilities as museums, theatres, galleries, arenas and historic sites, along with arts, culture, sport and heritage related events such as performances, productions, presentations, and festivals.
CAHSEIM calculates the direct, indirect, induced as well as the total impacts of labour income, gross domestic product (GDP), employment (total jobs, and number of full-time equivalents) and revenues for taxes on products and taxes on production incurred by the expenditures attributable to an organization, festival or event.
This User Guide contains two sections:
- Section 1: Culture, Arts, Heritage and Sport Economic Impact Model (CAHSEIM) Fundamentals; and
- Section 2: How to use CAHSEIM: A step-by-step guide.
Should you have any questions regarding CAHSEIM, please don't hesitate to contact the Department of Canadian Heritage's Policy Research Group.
Section 1: The Culture, Arts, Heritage and Sport Economic Impact Model (CAHSEIM) Fundamentals
The Culture, Arts, Heritage and Sport Economic Impact Model (CAHSEIM) is a tool that evaluates the economic impacts of arts, culture, sport and heritage organizations, facilities and events within and outside the province or territory where they are located. This section will discuss the basics of CAHSEIM, including an Introduction to economic impact modelling and CAHSEIM (Section 1.1); Important advantages of CAHSEIM (Section 1.2) What CAHSEIM measures (Section 1.3); Setting the boundary of your impact analysis (Section 1.4); CAHSEIM's main limitations and assumptions (Section 1.5), and, finally, Verifying your results: The 25% rule (Section 1.6).
1.1 What is economic impact modelling and CAHSEIM
Economic impact models assume that changes in expenditure can have ripple effects throughout an economy, and estimate the impact of such changes. The underlying assumption is that a decrease in expenditures result in economic contractions, while increased expenditures stimulate economic growth.
Statistics Canada measures this cascading effect throughout the Canadian economy through its Input-Output Models. These models are based on Statistics Canada's comprehensive Supply and Use Tables (formerly known as the Input-Output Tables) which consist of detailed statistics on activities in the Canadian economy (i.e. production, intermediate use and final consumption of goods and services) to estimate the total effect of an initial change in spending in a particular area of the economy, which are defined as multipliers. The statistics also aid in determining coefficients, which essentially are estimates of what proportion of a dollar spent on an organization, facility or event will be spent in the local or regional economy, as well as in other provinces and territories.
CAHSEIM specifically relies on Statistics Canada's Inter-provincial Input-Output Model, which takes into account inter-provincial/territorial trade, as well as provincial production and consumption of goods and services, and provides comparable multipliers and coefficients for each province and territory. The current version of CAHSEIM uses coefficients and multipliers for the base year 2014.
CAHSEIM uses the multipliers and coefficients to estimate the impact of an organization, facility or event in terms of labour income, gross domestic product (GDP), employment and tax revenues (confined to taxes on production and taxes on products), which are explained in greater detail in Section 1.5.
1.2 Important advantages of CAHSEIM and other Input-Output models
CAHSEIM is a simple and easy to use tool. It is unique in the sense that it specifically estimates the economic impact of arts, culture, sport and heritage organizations, facilities and events at the micro-economic level. The model also shows a multitude of different types of impacts for a variety of economic indicators at both the local level, as well as across the country.
The model relies on data from Statistic Canada's Supply and Use Tables (formerly known as the Input-Output tables), which are the most comprehensive, coherent and detailed statistics on the production and consumption of goods and services in the Canadian economy.
Moreover, the assumptions used by the model are straightforward, easy to understand and transparent. The model's assumptions are discussed at length in Section 1.5.
Much like all economic models, it is important to note that CAHSEIM uses assumptions to estimate economic impacts. Ultimately, all economic models, including CAHSEIM, are inherently limited by their reliance on assumptions. Models are only as reliable as their assumptions, and due to their assumptions only produce approximations of what they are seeking to measure.
1.3 What CAHSEIM measures
CAHSEIM measures three types of economic impact: direct, indirect, and induced impacts. All three types of impact are added together to calculate the total impact of an organization, facility or event. Further, it measures the direct, indirect and induced impacts in terms of the following indicators: gross domestic product (GDP), labour income, employment (total jobs, and number of full-time equivalents), as well as taxes (limited to taxes on production and products).
Each of these terms are defined in detail below.
Types of Economic ImpactFootnote 1
Direct impact is the impact of expenditures directly attributable to the entity under study. In the case of CAHSEIM, an "entity" can be an arts, culture, sport or heritage organization, facility or event. For example, if a museum employs 200 people, then the direct employment impact of that new museum is 200 jobs.
Indirect impact is the impact attributed to changes in the expenditures of businesses that supply the goods and services to the entity directly under study, resulting from the entity's purchase of the businesses' goods and services. In other words, it measures the changes in the economy due to the spending of businesses that supply the entity. For the museum, an example of indirect impact is the number of jobs at the company that supplied building materials used in the construction of the new museum.
The induced impact is the impact attributed to the purchase of all the goods and services that were sold as a result of the workers who spend their wages and salaries buying goods and services (groceries, gasoline, haircuts, etc.), which were earned as a result of both the direct and indirect impacts (e.g. the museum and the suppliers of building materials, in this case). In other words, it measures the changes in the economy due to the spending habits of employees who work for the entity and the employees who supply the entity. Please note that CAHSEIM does not capture the induced effects of government expenditures.
"Open" refers to the sum of the direct and indirect impacts.
"Closed" impact refers to the sum of the direct, indirect and induced impacts.
Gross domestic product (GDP)
GDP is the total market value of all final goods and services newly produced within an economy during a fixed period of time.
Goods are physical objects, such as a painting, while services are intangible products such as a staged dance performance or a concert. The total market value of a good or service is the price paid in the market for that product (e.g. the price paid for admission to a music concert).
It is important to note that GDP is the total value of all final goods and services. This means that the value of intermediate goods or services, which are goods and services used in the production of a good or service (e.g. lighting rentals for a music concert), is not included in GDP. Their value is already captured in the market price of the final good or service (e.g. a concert producer includes their expenditures on lighting rentals in the price of admissions to the concert).
Labour income includes a worker's wages (amount of wages and salaries paid to individuals), supplementary labour income and the net income of unincorporated businesses (e.g. a musician, registered as a company, who works on contract).
This refers to the total number of positions within an economy. It includes those paid by companies, those who are self-employed, and owners of unincorporated businesses (e.g. a musician, registered as a company, who works on contract).
Employment (Full-Time Equivalents: FTEs)
This is the equivalent of one year of work for one person (e.g. three individuals working for a four-month period would equal one FTE, or five FTEs could represent one individual holding a full-time position for five years). Employment is measured in person-years (FTEs). Employment for part of the year is counted as a corresponding proportion of a person-year.
Taxes on Production
Tax on production is comprised of property taxes, licenses and permits.
Taxes on Products
Tax on products includes GST, PST, harmonized sales tax, manufacturers sales tax, amusement taxes and excise taxes.
1.4 Setting the geographic boundary of your impact analysis
When conducting an economic impact analysis, it is critical to define the geographic area in which impacts are being assessed.
CAHSEIM has been specifically designed to assess the impact of organizations, facilities and events that operate at the provincial or territorial level or lower (e.g. they may provide goods or services for an entire province, a city, or a neighbourhood). Should an organization, facility or event operate at the national or international level, one would need to break down their expenditures by province and/or territory in order to properly input the data into CAHSEIM.
1.5 Main limitations and assumptions
CAHSEIM has been designed to be a robust, reliable, accurate and flexible tool, founded on data from Statistic Canada's Supply and Use Tables (formerly known as the Input-Output tables, which, as mentioned previously, are the most comprehensive, coherent and detailed statistics on the production and consumption of goods and services in the Canadian economy). That being said, CAHSEIM does rely on certain assumptions, and faces some inherent design limitations, as is the case with similar Input-Output economic impact models.
CAHSEIM, which is a static model, is based on Statistics Canada's 2014 Interprovincial Input-Output model. This means that the results are fully scalable and that the model reflects the structure of the economy at a given point in time. Consequently, the current iteration of the model does not take into consideration external factors that might have occurred since 2014, such as a significant change in trade patterns or dramatic fluctuations in the value of the Canadian dollar.
Furthermore, CAHSEIM assumes that the level of output is driven by demand, regardless of the size of that demand. Increases in demand for goods and services do not change the market price of that good or service or the ability of producers to supply it. The producer will simply respond to increased demand by increasing production and by hiring on more labour to produce the goods and services that are demanded (or, in economic terms, the supply of output is perfectly elastic at the prevailing price level so that output is determined by demand).
Additionally, the model only measures economic impacts, and excludes social and other intrinsic benefits that are difficult to measure. The arts, culture, heritage and sport enrich our lives in a diverse number of ways. There is a considerable amount of research that shows that they bolster social engagement, contribute to community development, positively impact academic achievement, and support good physical and mental health. These other benefits are not reflected in the economic impact estimates produced by CAHSEIM.
Finally, CAHSEIM's multipliers have the following limitationsFootnote 2:
- Lack of supply-side constraints: The model assumes that the economy has no supply-side constraints. This means that it assumes that extra output can be produced in one area without taking resources away from other activities. This may overstate actual economic impacts. The actual impact is likely to be dependent on the extent to which resources, such as labour and capital, are available in the economy.
- Fixed prices: Constraints on the availability of inputs, such as skilled labour, require prices to act as a rationing device. In assessments using multipliers, where inputs such as labour and capital are assumed to be limitless, prices are assumed to be fixed. Thus, prices are unaffected by changes in government expenditures, policy, or demand, which means these effects are not captured by the model.
- Fixed ratios for intermediate inputs and production: Economic impact analysis using multipliers implicitly assumes that there is a fixed input structure in each industry and fixed ratios for production. As such, impact analysis using multipliers can be seen to describe average effects, not marginal effects. For example, increased demand for a product is assumed to imply an equal increase in production for that product. In reality, however, it may be more efficient to increase imports or divert some exports to local consumption rather than increasing local product by the full amount.
Static Models versus General Equilibrium Models
Static models, like CAHSEIM, have assumptions that are relatively straightforward, easy to understand and transparent. CAHSEIM relies on data from Statistics Canada's Input-Output tables. These tables contain comprehensive and detailed statistics on the production and consumption of goods and services in the Canadian economy. As a result of this, Input-Output models tend to be more reliable as they are based on observed patterns of economic activity.
By contrast, the limitations and assumptions of general equilibrium models, which tend to be the most common type of economic impact model, are not always known to the user or easy to understand. General equilibrium models describe the allocation of resources in an economy as the result of the interaction of supply and demand. They make multiple assumptions regarding factors such as competition, elasticity, levels of employment, and income. Although general equilibrium models can be more accurate than Input-Output models, this accuracy is highly dependent on the validity of the assumptions and the methodology used to implement them (as opposed to the actual observed patterns of economic activity of Input-Output models).
1.6 Verifying your results: The 25% rule
The "25%" rule is helpful in determining if CAHSEIM is suitable and providing reliable results for your particular organization, facility, or event.
In most cases, one knows the direct impact of an entity in terms of some variables such as labour income and jobs. As outlined in Section 1.3, direct impact is the impact of expenditures directly attributable to the entity under study. Thus, should a museum employ 200 people, its direct employment impact is 200 jobs.
In order to determine if the model is producing reliable results, one can compare the direct results from the model with the known direct results and compare it. If the difference between reality and the model's estimates is within +/- 25%, then the indirect and induced impact estimates are deemed to be reliable. If the difference between the known direct impact and the model estimates of the direct impact is greater than +/- 25%, then you may conclude that the model results are not reliable or suitable for your analysis. So, CAHSEIM should report somewhere between 150 and 250 jobs for the example above, to be considered within the "25%" rule of reliability.
Section 2: How to use CAHSEIM
A Step by Step Guide
Using CAHSEIM: An Overview
CAHSEIM is an excel spreadsheet.
To use CAHSEIM, the user should input all known expenditures in the first tab, which is on the bottom left of the Excel document which is labelled "Exp." Once all available data have been inputted, the economic impact calculations are instantly available in the results tab.
The specific steps for using CAHSEIM are as follows:
Step one: Identify what you want to measure
The first and most important step is clearly identifying what you wish to measure, and the period of measurement (e.g. a few months, a full year, several years). This is necessary to determine which expenditures you should include, and possibly also exclude, when using CAHSEIM. CAHSEIM can be used for any arts, culture, sport or heritage organizations, facilities or events (e.g. a museum [or just a limited run exhibition], a theatre season, a hockey arena, a music festival, or sporting event), but not for any other types of organizations, facilities or events.
For example, a performing arts theatre may just wish to measure the impact of one production, as opposed to an entire theatrical season. This would require identifying the total expenditures related to the production specifically, instead of the theatre's full expenditures when the production was active if there were also other productions being staged at the same time.
Step two: Collect expenditures data for what you want to measure
This is often found in the year-end audited financial statements of incorporated businesses. Conversely, this may be information tracked through regular bookkeeping, or by some other means, especially for periods of more or less than a year. Regardless of the source, this information is vital to using CAHSEIM.
Broadly, there are three types of expenditures that can be entered into CAHSEIM (see below), each with their own set of specific sub-categories. Notably, you do not need to provide expenditures under each category to use CAHSEIM. CAHSEIM will work even if you only enter expenditures under one sub-category. However, entering more expenditures will generate more robust results, and better reflect the full breadth of the economic impacts.
Please note, it is recommended to the degree possible to limit expenditures to 'new' expenditures in the economy, as opposed to 'redirected' expenditures. Redirected expenditures are, for example, a local visitor's expenditures on an admission ticket to a museum, in lieu of a going to see a movie in the local theater. A 'new' expenditure would be a tourist from out of town buying an admission ticket to a museum. Capturing 'new' expenditures, such as expenditures by visitors from out-of-province or out-of-country will produce more reliable estimates of economic impacts.
- Operating and Maintenance Expenditures
This is the amount spent by an organization, facility or event, and by any partners as one may wish to include, for the purchase of goods and services that fall under the following categories:
- Governmental and related personnel for arts, culture, sport and heritage organizations, facilities and events;
- Personnel (non-governmental or related) for arts, culture, sport and heritage organizations, facilities and events;
- Transportation and communications;
- Professional and special services;
- Purchased repairs and maintenance;
- Materials and supplies;
- Payments in lieu of taxes; and
- Transfer payments and public debt charges.
Specific sub-categories of note are as follows:
Governmental and related personnel for arts, culture, sport and heritage organizations, facilities and events – This category applies to employee wages at government owned and operated organizations, facilities and events such as an employee at a national museum such as the National Gallery of Canada.
Personnel (non-governmental or related) for arts, culture, sport and heritage organizations, facilities and events – This category applies to employee wages at non-governmental organizations, facilities and events such as a private museum.
Payments in lieu of taxes – As federal property is constitutionally exempt from local taxation, national museums or other federally-owned properties make payments to local governments in lieu of taxes. This category of expenditure specifically applies to these type of expenditures.
Transfer payments – Transfer payments are a one-way payment of money for which no money, good, or service is received in exchange. Examples of transfer payments are government grants, contributions, or subsidies. This category of expenditure should be used in the case when an entity is unable to determine where a transfer payment is spent (i.e. how grant money is spent by an organization that received the grant).
- Investment and Infrastructure Expenditures
The amount spent by an organization, facility or event, and by any partners as one may wish to include, on infrastructure (capital) for both new organizations, facilities or events (including expansion of existing infrastructure) and improvements made to existing capital structure. These expenditures are broken down into the following categories:
- Acquisition of machinery and equipment;
- Residential infrastructure (new and renovations);
- Non-residential infrastructure (new and renovations);
- Transportation infrastructure; and
- Other infrastructure investments.
Please note, the costs allocated for the acquisition of land, existing buildings and used equipment and machinery and other goods (such as artifacts, etc.) must not be included in the organizations' expenditures. Expenditures made on those items add nothing to the provincial or territorial economy because they are simply transfers of property (and thus requiring no additional production) between two economic agents.
- Visitor Expenditures
This is the amount spent by visitors, spectators or an audience on items in the following categories:
- Transportation (automobiles);
- Transportation (car rentals);
- Transportation (other modes);
- Food and beverages (at restaurants);
- Recreation and entertainment;
- On retail (souvenirs, film, incidental items); and
- Other expenditures.
Visitor expenditures in the province or territory where the facility (e.g. a museum) is located or the event is taking place, which are generated by the facility or event, should be included in an economic impact analysis. However, when several facilities and/or events are visited during one trip (i.e. a multi-destination trip), only a portion of visitor travel and accommodation expenditures should be attributed to any one facility or event. Revenues (incomes) received by those facilities or events from these visitors must be deducted from total visitor expenditures.
A facility's or event's revenues can be used as a proxy for tourist expenditures in CAHSEIM, but all sales taxes must be included in the totals entered into CAHSEIM (i.e. GST, PST, and/or HST depending on the province/territory) in order to be calculated correctly. If they do not, one must multiply the revenues by the applicable tax rate for a province/territory, and using that new total in CAHSEIM.
Step three: Input expenditures into CAHSEIM's expenditures tab
The user should input all known expenditures in the first tab, which is on the bottom left of the Excel document and is labelled "Exp." The expenditures must be in the column of the province and/or territory where the expenditures were made, which is most often where the organization, facility and/or even is physically located. Exceptions to this can include known expenditures made in another province or territory, especially for larger entities that operate across two or more jurisdictions. Further, include all taxes when inputting expenditures into the excel table.
Step four: Results are instantly available in CAHSEIM's results tab
Once all available expenditures data have been inputted, the economic impact calculations become instantly available in the results tab (labelled "Results" in the Excel file).
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