On The Use and Misuse of Input-Output Based Impact Analysis in Evaluation

Grady, Patrick and Muller, R. Andrew (1986): On The Use and Misuse of Input-Output Based Impact Analysis in Evaluation. Published in: The Canadian Journal of Program Evaluation , Vol. 3, No. 2 (1988): pp. 49-61.

Abstract

Estimates of economic activity generated and jobs created that are derived using input-output analysis are often presented in program evaluations and confused with the benefits resultin g from die program. Two such cases are presented as examples. We argue that for two main reasons this type of analysis con stitutes a misuse of input-output analysis. First, input-output estimates generated using the Keynesian closed versions of input-output models are biased upwards because they ignore the price and financial feedbacks that tend to reduce multipliers in macro-economic models. Second, and more important, it is inappropria te to consider induced effects resulting from a particular program in isolation, because such effects can only be properly considered in the aggr egate at th e level of overall stabilization policy. In this paper we contend that cost-benefit analysis, with its assumption of full employment, is the most appropriate tool for analyzing the benefits resulting from particular programs. Input-output analysis should be confin ed to providing estimates of die industr ial or regional breakdown of the direct impact of a program or of the employment impacts of program spending. It should not be used to generate Keynesian multipliers.

• Item Type: MPRA Paper
• Language: English
• Keywords: input-output analysis, Keynesian multiplier, evaluation
• Subjects: C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C52 - Model Evaluation, Validation, and Selection; H - Public Economics > H4 - Publicly Provided Goods > H43 - Project Evaluation ; Social Discount Rate; C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C67 - Input-Output Models

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