The Truth About Economic Impact

The credibility problem

Economic impact reports have a reputation for inflation, and it is largely earned. Everyone has seen the headline promising that a new arena will bring five hundred million dollars to the local economy. Six years later the neighbourhood is unchanged, property tax revenue has not moved, and the public has grown a little more cynical about the next study.

The usual culprit is the multiplier effect, the sound economic idea that a dollar spent by a visitor circulates through the local economy more than once. Multipliers are real. They are also fragile, and they are routinely stretched to justify projects that do not deliver.

The anatomy of an impact report

To see where reports go wrong, it helps to understand the three layers of impact. Direct impact is the money actually spent by the organization and its visitors on tickets, hotel rooms and restaurant meals. It is the only hard number in the study; everything else is estimated. Indirect impact is the supply-chain effect: the hotel's spending on laundry services, the restaurant's spending on locally sourced ingredients. It assumes the supply chain is local. Induced impact is the income effect: the groceries a hotel housekeeper buys because she has a job. It assumes she would not have found work elsewhere.

Each layer adds an assumption, and by the time a report reaches induced impact it is three assumptions deep.

The familiar tricks

Inflation usually enters through one of three doors. The first is geography. A national or provincial multiplier applied to a hyper-local project overstates the result, because a dollar spent in downtown Toronto stays in the city far longer than a dollar spent in a small northern Ontario town, where it leaks out almost immediately to pay for goods brought in from elsewhere. If the project is local, the multiplier should be too.

The second is displacement. When a Calgary resident spends fifty dollars at your festival, that is fifty dollars not spent at the local cinema or restaurant. It is displaced activity, not new activity, and a rigorous report adjusts for it. Most do not.

The third is the job count. A project that "supports two hundred jobs" has said nothing until it explains whether those are full-time equivalents, person-years or seasonal part-time positions. Two hundred permanent jobs and two hundred summer students for eight weeks are very different claims wearing the same number.

Building a report that holds

At World's Edge Group we take the view that an economic impact report is worth exactly as much as its defensibility. When a city councillor, a journalist or a skeptical chief financial officer digs into the footnotes, they should find conservative assumptions and a transparent method, not a case for the defence.

That starts with showing the math: publish the multipliers used and cite their source, which in Canada usually means the input-output tables Statistics Canada publishes by region and industry, and explain in plain language any custom multiplier you apply. It means reporting net impact rather than gross spending, and keeping the distinction visible, because gross figures make headlines while net figures make decisions. It means acknowledging what the study could not measure. If displacement or substitution effects could not be cleanly separated, say so; honesty builds credibility and overconfidence destroys it. And it means putting people beside the numbers. A ten-million-dollar impact figure is abstract until it sits next to the local caterer who hired two new staff or the Indigenous-owned supplier that secured a three-year contract. Numbers justify. Stories persuade.

What the executive should take away

A good impact report gives the chief financial officer a defensible number to justify the investment, and it gives the chief executive or the board chair a narrative they can use to build confidence among stakeholders. Both matter. But the test is simple. If the report cannot survive a CBC journalist's follow-up questions, it is not an asset. It is a liability waiting for a news cycle.