What Is A Multiplier?
Economists and economic development organizations like DCVB use spending as a way to measure success. After all, the purpose of economic development is to fuel the local business climate, create jobs for residents and generate tax revenues that broaden the tax base and lessen the burden on residents.
People are often confused by the term “multiplier.” Multipliers are used to project what a dollar of spending will induce. Dollars visitors spend in a hotel, for instance, are respent by employees and the hotel with cleaners, food and beverage purveyors, construction, utilities, etc.
For example, a dollar spent by a visitor in Durham will induce another 70 cents of spending before it leaves the Durham business climate. This means the multiplier is 1.7. For every dollar of visitor spending, a total economic impact of $1.70 is generated.
On the other hand, if a Durham visitor is diverted to Cary, Raleigh or Chapel Hill for, let’s say, dinner or shopping, “leakage” takes place, meaning the spending and tax revenues are lost.
Multipliers are not theoretical. They are developed on a county by county basis using input-output studies. They are not interchangeable. Although a typical visitor spending multiplier of 1.7 is used throughout the United States, it varies community by community.
Years ago, multipliers got a bad name when some Chambers of Commerce began to mistakenly use theoretical multipliers...e.g., a perfect economy, one that produces all of its own goods and services would have a multiplier of “7.”
In Durham, while an overall multiplier is used for visitor-related spending, the multipliers vary within the visitor sector for hotels, eating and drinking places, retail stores, sports events, etc. The multipliers or inducements also vary for spending vs. employment generated.
Last updated 2004
