The latest letters about film industry incentives continue a long tradition of misinterpreting the economic multiplier effect for the actual benefit of the government subsidy.
While the incentive is paid out or foregone by the government as an absolute amount, the government can only recover from the multiplier effect the taxation that it imposes on economic activity — sales taxes, personal income taxes on the labour component of the activity and corporate taxes on the profitability of the activity. The PST-HST should recover seven per cent, but the PST will be inefficient and recover less
All in all, the government would probably be lucky to recover 10 per cent of its outlays. In other words, laying out $11 million for the Bollywood awards would require additional economic activity of more than $100 million to make it a sound investment. The modest $13 million to $18 million will produce only about $1 million to $2 million in revenue for the government to offset its outlay.
Since this is a one-time effect, one cannot argue that benefits are ongoing. Good economics?
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