How does this loaves & fishes impact happen? How can €1.00 become €1.95? The multiplier. Suppose the government spends €1 and the person who gets it spends 50c, and the person who gets the 50c spends 25c, and the person who gets the 25c spends 12.5c, and so on. If we add up all these expenditures then we get €2. The multiplier in this case is 2.
The multiplier is the best friend of the economic consultant. It is attributed to Richard Kahn and made popular by John Maynard Keynes. Investec say, the multiplier of 1.95 means that "every €1 outlay on sport generates €1.95 in economic activity". But hold on, how goes this €1.95 increase in economic activity translate into €1.95 in tax revenue? What is the implied tax rate? Answers on a postcard to Investec Economic Research.
The work was commissioned by the Federation of Irish Sport. The chairman of that organisation, Roddy Guiney, writes the Foreword and he zones in on the €1.95 finding. Guiney says "for every euro invested by the Government in sport the return could be as much as €1.95."
The words "may recoup up to" and "could be as much as" are not enough to warn off those who want to believe. True believers usually don't require evidence. Faith is enough. Those with a little less faith, but want to believe, can now quote economic scripture according to Investec. They will probably not read the full report. If they did then they would find a little more qualification. Later on in the report we find the €1.95 claim followed by "although we are mindful that the multiplier of 1.95 is an EU-wide estimate rather than specific to the Irish context". Indeed. So let us look at the Irish figures provided in the Study on the Economic Impact of Sport through Sport Satellite Accounts. The document provides a range of multipliers that go to make up the country specific multiplier. None of these domestic "sector-specific multiplier" is as big as 1.95. None. Using the Ireland table in the EU report, the GDP-weighted multiplier for Ireland is 1.21. A far cry from 1.95. So why did Investec use 1.95 rather than one "specific to the Irish context"? Is the Federation of Irish Sport unhappy with the use of the 1.95 multiplier? I'm guessing that the Federation of Irish Sport will not be putting a cheque in the post to me for suggesting the 1.95 multiplier is not the appropriate one.
Warner Brother would sign-off their cartoons with "That's All Folks!" The title of this blog post comes from one of those cartoons. Bugs Bunny is asked to multiply two very large multi-digit numbers. He immediately gives the correct answer. He then says "if there is one thing us rabbits can do, its multiply".
That's not all folks! We'll return to some of the other findings in the report at a later date.