Monday, February 15, 2010

Winter Olympics

The Winter Olympics have begun in Vancouver, Canada, to much fanfare and not a little tragedy.

An interesting question is whether hosting an event such as the Olympics is beneficial for an economy. It represents a massive increase in government spending usually, and this will certainly be the case for the UK as it hosts the games in 2012. Such increases could be beneficial if they stimulate the economy - government spending is an injection.

However, this depends on the extent of the multipler of such spending - does the money spent on building stadia and other facilities go into the pockets of workers who then spend it in the supermarket, which then ends up in the pockets of supermarket workers who spend it elsewhere, and so on?

Japan has found that the multipler for fiscal projects is as little as 0.3: So 1 yen going into public works (they have an awful lot of useless empty roads here) yields only 0.3 of a yen in terms of actual increase in national output - so in fact the effect is negative. As such, the government here has now stopped all such investments and there are half built roads doing nothing now.

Many people however claim that the Olympics are bad for a nation. Taxes are higher, and potentially inflation will be too - particularly as the UK already has a very large budget deficit.

Does the prestige effect help? More tourists spending money coming to the country? It's a very big calculation, and the pessimists say it's not worth it, while the optimists say it is...

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