Data

The following code demonstrates the use of iotables in a real-life situation. The first step is not executed because it requires large file download.

#naio_10_cp1700 <- iotables_download("naio_10_cp1700") #SIOT
#naio_10_cp1620 <- iotables_download("naio_10_cp1620") #margins
#naio_10_cp1630 <- iotables_download("naio_10_cp1630") #tax

#Conforming employment data 
#both sexes from 15 years old
emp_sk <- employment_get(geo = "SK", year = "2017", sex = "Total",
  age = "Y_GE15", labelling = "prod_na", data_directory = "../not_included",
  force_download = TRUE)

#only female workers
emp_female_sk <- employment_get(geo = "SK", year = "2017", sex = "F",
  age = "Y_GE15", labelling = "prod_na", data_directory = "../not_included",
  force_download = FALSE)

save ( naio_10_cp_1750, naio_10_cp1700, 
       naio_10_cp_1610, naio_10_cp1620, naio_10_cp1630, 
       emp_sk, emp_female_sk,
       file = "not_included/naio_10_prod_prod.rda")
load ( file = file.path('..', 'not_included', 'naio_10_prod_prod.rda') )
sk_io <- iotable_get ( labelled_io_data = naio_10_cp1700 , 
                       source = "naio_10_cp1700", geo = "SK", 
                       year = 2010, unit = "MIO_NAC", 
                       stk_flow = 'TOTAL', 
                       labelling = "short" )
sk_ext <- sk_io %>%
  total_tax_add(., total_tax_name = "TOTAL_TAX") %>%
  supplementary_add( ., emp_sk, supplementary_names = "EMP")

Technology

The input coefficient matrix show what happens when an industry is facing additional demand, such as spending from cultural tourists on concert tickets and CDs. It shows how raw CDs are imported, or how larger concert spaces are rented due to increased demand.

The input coefficients for domestic intermediates are defined on page 486. You can check the following results against Table 15.8 of the Eurostat manual.

  1. \(a_{ij}\) = \(x_{ij}\) / \(x_j\)

It checks the correct ordering of columns, and furthermore it fills up 0 values with 0.000001 to avoid division with zero. The digit = NULL (default) does not round the results.

prod_na CPA_A01 CPA_A02 CPA_A03 CPA_B CPA_C10-12 CPA_C13-15
CPA_A01 0,1970 0,0099 0,0008 0,0004 0,2080 0,0096
CPA_A02 0,0028 0,3965 0,0000 0,0034 0,0004 0,0001
CPA_A03 0,0000 0,0000 0,0015 0,0000 0,0015 0,0000
CPA_B 0,0027 0,0107 0,0000 0,0872 0,0011 0,0001
CPA_C10-12 0,0332 0,0002 0,0878 0,0002 0,1458 0,0004
CPA_C13-15 0,0002 0,0003 0,0015 0,0003 0,0007 0,1640
CPA_C16 0,0016 0,0007 0,0023 0,0044 0,0014 0,0013

The Leontieff matrix is derived from Leontieff equation system.

  1. (I-A)x =y

The Leontieff matrix is defined as (I-A) and it is created with the leontieff_matrix_create() function. It is unlikely that you need it.

The Leontieff inverse is (I-A)-1 and it is created with the leontieff_inverse_create() function from the Leontieff-matrix.

prod_na CPA_A01 CPA_A02 CPA_A03 CPA_B CPA_C10-12 CPA_C13-15
CPA_A01 1,2656 0,0218 0,0317 0,0042 0,3137 0,0220
CPA_A02 0,0111 1,6587 0,0069 0,0111 0,0127 0,0053
CPA_A03 0,0001 0,0000 1,0017 0,0000 0,0018 0,0000
CPA_B 0,1020 0,0388 0,1009 1,1465 0,0775 0,0463
CPA_C10-12 0,0508 0,0016 0,1052 0,0011 1,1848 0,0028
CPA_C13-15 0,0013 0,0009 0,0044 0,0012 0,0027 1,1972
CPA_C16 0,0094 0,0041 0,0099 0,0120 0,0105 0,0072
prod_na CPA_A01 CPA_A02 CPA_A03 CPA_B CPA_C10-12 CPA_C13-15
CPA_A01 1,2656 0,0218 0,0317 0,0042 0,3137 0,0220
CPA_A02 0,0111 1,6587 0,0069 0,0111 0,0127 0,0053
CPA_A03 0,0001 0,0000 1,0017 0,0000 0,0018 0,0000
CPA_B 0,1020 0,0388 0,1009 1,1465 0,0775 0,0463
CPA_C10-12 0,0508 0,0016 0,1052 0,0011 1,1848 0,0028
CPA_C13-15 0,0013 0,0009 0,0044 0,0012 0,0027 1,1972
CPA_C16 0,0094 0,0041 0,0099 0,0120 0,0105 0,0072

Creating technical indicators

Technical indicators are based on the assumption of constant returns to scale and fixed relationship of all inputs. In this case, the technical input coefficients show how much input products, labour or capital is required to produce a unit of industry output.

  1. \(a_{ij}\) = \(z_{ij}\) / \(x_j\) [technical input coefficients]

The helper function primary_input_get() selects a row from the SIOT and brings it to a conforming form. The input_indicator_create() creates the vector of technical input coefficients.

The difference between emp_indicator_sk and emp_indicator_sk_2 is that the households are added (and zeroed out) in the second case to maintain conformity with the larger use table and output vector.

prod_na CPA_A01 CPA_A02 CPA_A03 CPA_B
EMP 0,0192 0,0204 0 0,0178

Often we want to analyze the effect of growing domestic demand on some natural units, such as employment or \(CO_2\) emissions. The only difficulty is that we need data that is aggregated / disaggregated precisely with the same industry breakup as our SIOT table.

European employment statistics have greated detail than our tables, so employment statistics must be aggregated to conform the 60 (61, 62) columns of the SIOT. There is a difference in the columns based on how national statistics offices treat imputed real estate income and household production, and trade margins. Czech SIOTs are smaller than most SIOTS because they do not have these columns and rows.

In another vignette we will show examples on how to work with these real-life data. For the sake of following the calculations, we are continuing with the simplified 1990 German data.

Direct effects

Economic structure - coefficient matrix

To understand direct effects, it is important to see how primary inputs are allocated in the Slovak economy.

The Eurostat SIOTs contain two tax-related items among the primary inputs.

  • Product type taxes, i.e. Taxes less subsidies on products (D21X31) are sales-type taxes, including VAT, reduced by the value of product-related subsidies, if applicable.
  • Production type taxes, i.e. other taxes less other subsidies on production (D29XD39) are employment-related taxes, net of subsidies, for example for employing handicapped people and other employment subsidies.

These were added together as TOTAL_TAX.

We cannot make a meaningful comparison of corporate and local taxes in this model. Again, taking the previous calculations but for all industries we get the following picture.

The following chart shows the household income rate, the amount of orders to suppliers, organized by value added, which includes personal and corporate income, too. We also included the imported component rates, because it is important to distinguish between foreign and domestic suppliers.

Direct effects

The music industry as a combination of live performances and audiovisual (recording) business has a slightly higher value added rate than banking, and live performances generally top the chart.

The effect on public finances is related to the tax rates, but also to the use of imported components and the domestic values added. Many people believe the car industrys to be a high-value added industry, however, much of the value is added outside of the Slovak Republic, and much of the production-related taxes are paid in foreign countries. Furthermore, because this industry sells most of its products abroad, most of the sales taxes, such as VAT or car registration tax is paid abroad, too.

Characteristics of Select Industries
industries employment enterprise income household earnings import product tax production tax suppliers total tax value added
agriculture 0,0192 0,4043 0,1385 0,3218 0,0099 -0,1201 0,5674 -0,1102 0,4227
audiovisual 0,0121 0,2228 0,1613 0,1211 0,0289 0,0232 0,5638 0,0521 0,4073
car manufacturing 0,0097 0,0858 0,0540 0,5044 0,0017 0,0006 0,8579 0,0023 0,1404
financial services 0,0127 0,3937 0,2284 0,1205 0,0134 0,0095 0,3550 0,0229 0,6316
live performance 0,0183 0,6287 0,1298 0,0013 0,0087 0,0195 0,2133 0,0282 0,7780
music industry 0,0162 0,4934 0,1403 0,0412 0,0154 0,0207 0,3301 0,0362 0,6544
social work 0,1770 0,0538 0,5424 0,0000 0,0383 0,0021 0,3633 0,0405 0,5984

The following chart summarizes the various characteristics of Slovak industries. Social work, agriculture, music has very high employment levels. In financial series, more and more jobs are automatized, and in the car industries, they are largely robotized. For an increase in spending for the products or services in this sector, especially the employment of social work raises – so much that we could not well place it on the chart.

Taxation is mainly connected to production, in the form of taxes levied on entrepreneurs and workers, and on products, i.e. VAT, excise duties and other sales tax levied on the products or services of the industry.

Agriculture has a large net negative tax contribution, because it is so heavily subsidized by taxpayer money: in order to save jobs in the rural areas and to maintain food security, all EU countries heavily subsidize this sector. Financial services have high, car manufacturing low taxes, because financial firms in Slovakia serve the domestic population, while car manufactures produce for exports, and their product is taxed outside of the Slovak Republic. Additionally, many components to car manufacturing arrive from abroad as imports, and the production related-taxes were already paid by Chinese, German, or other workers. Even though social work services require a lot of taxed labour input, these jobs are low-paid, and their ‘services’ are not market services, so no VAT is levied on them.

And at last, gross value added, i.e. the industry’s addition to GDP, is determined by the company and worker income in the Slovak Republic. The music industry in generally the creative industries have a vary high value added, because they rely little on imports, and they need few suppliers. Furthermore, they have a large tax impact because they usually sell all their services in the Slovak economy and pay the VAT and other applicable taxes here.

Direct Effect Of € 15000 Additional Demand
indicator car CD concert music
suppliers 12 868 2 537 2 240 4 777
import 7 566 545 14 559
household earnings 810 726 1 363 2 089
production tax 9 104 205 309
enterprise income 1 287 1 003 6 601 7 604
value added 2 106 1 833 8 169 10 002
product tax 26 130 91 221
total tax 34 234 296 531
employment 146 54 192 247

Total effects

Selecting the primary inputs only from the coefficient matrix we analyze impact on employment, value added (private income) and taxes.

The direct effects in the Slovak economy are related to the different characteristics of the industries. Social work needs not much machinery, and all spending on this social service goes for wages, which is in turn translating mainly to sales taxes in the shops as social workers spend their income. The total tax effect on the economy is higher in all parts of the music industry, too.

The car manufacturing industry has a huge impact on both imports and domestic suppliers, and through the supply chain on employment. The music industry and generally the audiovisual industries are still very strong in this regard, somewhat above the financial sector. The music industry generally could perform much better, if the conditions for music would be better in the Slovak Republic. As we have seen in the report, most musicians are micro enterpreneurs and often can only part-time work in music. Their royalty income, which is a wage-like earning, is especially very low compared to their European peers. While the structure of the industry is ideally placed to make an exceptionally high impact on the Slovak economy, the earning capacity of musicians, especially the royalty-earning capacity must be strengthened.

Total Effect Of € 15000 Additional Demand
indicator car CD concert music
suppliers_effect 41 353 5 605 4 109 9 715
import_effect 34 473 3 848 1 645 5 493
household earnings_effect 5 686 1 610 1 970 3 580
production tax_effect -34 116 229 345
enterprise income_effect 9 040 2 591 8 173 10 764
value added_effect 14 690 4 318 10 372 14 690
product tax_effect 311 182 129 311
total tax_effect 277 298 358 656
employment_effect 655 124 251 375

The creative industries are contributing a lot more to taxes for each euro of production than car manufacturers, because these factories employ mainly robots, and their products are sold and taxed abroad. Furthermore, they import many ready-made components whose production-related taxes had been paid abroad.

Many people believe that creative indutries are dependent on subsidies, but this is not the case. Agriculture is the sector where the policy aim to support jobs in rural and farming areas, and not to be dependent fully on food imports requires subsidies for non-competitive production.

Generally, services that are offered for the domestic population have the highest tax contribution. The music industry has a higher tax contribution per one euro of output thank banking, which also employs expensive machinary and imported components. The creative industries, similarly to

It would be unfair to judge the car industry only on the basis of their direct tax and value added effects, because this industry has a very long supplier base. To have a fuller view of the economic impact, we have to take into consideration of the multiplication of production.

Interindustrial linkage analysis

The demand side, backward linkages show how much incremental demand is created via suppliers when an industry is facing increased demand and produces more. Forward linkages on the other hand show the effect of increased production, which gives either more or cheaper supplies for other industries that rely on the output of the given industry.

For example, when a new concert is put on stage, orders are filled for real estate, security services, catering, etc, which show in the backward linkages. The concert attracts visitors that creates new opportunities for the hotelling industry in forward linkages.

Currently iotables only caclulates backward linkages, but the creation of forward linkages is simple and will be added soon.

Backward linkages

The lack of backward linkages shows that there are few suppliers for the production. Industries with low backward linkages pay out most of their revenues. If they pay it for domestic workers, like in the case of live performances, they have an immediate and large effect on the Slovak macroeconomic demand.

Forward linkages

Forward linkages are opportunities created by an industry in other industries where it is considered as a supplier. For example, a good supply of production music creates opportunities in advertising agencies. Forward linkages are usually high when backward linkages are low. For example, agriculture has high forward linkages because it creates opportunities first in food processing than in restaurants. The forward linkages of the music industry are in the medium-low category. Their very high tax and value added impact is due to the fact that concert promoters and record publishers convert income into domestic, taxable income immediately. While agriculture has a net negative tax impact, it eventually creates new opportunities forward.