International Association for Impact Assessment

Economic and Fiscal Assessment

Edited By: Brdget

Overview & History

The effects of resource or industrial development projects or of changes in policies or programs on the economy and population of an affected region or local area are of substantial interest to decision makers. Impact assessment specialists have categorized these effects, often termed socioeconomic impacts, in a number of ways; but such classifications almost always include economic impacts (including changes in local employment, business activity, earnings, and income) and fiscal impacts (changes in revenues and costs of local government jurisdictions).  

Economic Impact Assessment

The purpose of an economic impact assessment is to estimate the changes in employment, income, and levels of business activity (typically measured by gross receipts or value added) that may result from a proposed project or program. As with the assessment of other categories of impacts, the general approach involves projecting the levels of economic activity that would be expected to prevail in the study area with, and alternatively without, the project. The differences between the two projections measures the impact of the project.

The economic effects of a project or program can be divided into direct effects (initial expenditures, persons directly employed, etc.) and secondary effects. To estimate the secondary effects of a project, most analysts employ input-output models, which quantify the linkages among sectors of the area economy. Others use employment or income multipliers derived by a variety of statistical methods.

Fiscal Impact Assessment

The purpose of fiscal impact assessment is to project the costs and revenues of governmental units that are likely to occur as a result of a development, policy, or program. The governmental units of primary interest generally are those local jurisdictions that may experience substantial changes in population and/or service demands as a result of the project. The fiscal implications of a new project are determined by a number of factors, including project characteristics (e.g., the magnitude of investment, the size and scheduling of the workforce) and site area characteristics (e.g., state and local tax structure, the capacity of existing service delivery systems) and by the nature of the economic and demographic effects resulting from the project. Furthermore, because the fiscal impacts of a project are of considerable interest to local officials and their constituents and to developers, the fiscal impact assessment should be designed to produce information in a form that is user-friendly to policymakers.

Specific techniques employed to estimate the fiscal impacts of projects or programs differ somewhat in the details of the estimation procedure, and assessments differ substantially in the scope of costs and revenues addressed. In general, the revenues of local governments can be broadly classified as own-source revenues (i.e., taxes and charges assessed and collected directly by local jurisdictions) and intergovernmental transfers (i.e., funds received from state and federal levels). Own-source revenues can be further classified according to their primary determinants into those based on property valuation, those based on income or sales, those based on the level of production of some industry, and those based largely on changes in population. The techniques which are most appropriate for estimating revenues from these sources will differ depending on the revenue source.

A number of approaches can be employed in estimating the community service costs associated with growth. Cost estimation methods can be categorized into average cost and marginal cost approaches. The average cost approaches include the per capita expenditure method, the service standards method, and the use of cost functions derived from statistical analysis. Marginal cost approaches include the case study approach, comparable city analysis, and economic-engineering methods. 


Special thanks to F. Larry Leistritz for providing initial content for this IAIA Wiki topic.

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