IRRATIONAL BUDGETING: METHODOLOGY

Posted by Kathryn Schwartz on January 14, 2014
Economy

METHODOLOGY

The present study has been conducted to ascertain the impact of irrational budgeting on the performance of complex, long term and multidimensional mega events. The analysis was conducted on hosting the Commonwealth Games in relation to its impact on the economic standards of a hosting city/country. The study further revealed the importance of a rational budget for the successful completion of such types of mega events, which are basically the economic, political, and sovereign power showcase to the world. The study is focused on two editions of Commonwealth Games-Commonwealth Games 2006 Melbourne and Commonwealth Games 2010 Delhi; and the accompanied budgetary provision to host the mega events.

This study used a Computable General Equilibrium (CGE) model due to the size and relative significance of the event. CGE models are economy wide models used to provide an assessment of the impacts throughout the economy of a given policy change or economic shock. As the name suggests, “computable” or “applied” refers to the emphasis of the models as being a practical application, in that with the ever broadening sphere of economic theory the models are able to accommodate the changes and upgrades in economic thought into their framework. Buyer seller

The general equilibrium portion of the description refers to the fact that the models provide a detailed structural picture of the interdependent component operations of the economy and that theoretically demand is equal to supply therefore providing an equilibrium position. Most of the development and use of CGE model has occurred in the economic development literature owing to the perceived need for a more complete analysis than that available from a sectoral approach.

In essence the use of a CGE model provides an indicative measure of the impacts of an event on the formal economy the impacts on incomes generated, on material and services consumption, on employment, and on macroeconomic variables such as inflation and balance of trade. It represents a part (and often a critical part) of a cost benefit analysis, which would include additional non- market benefits and costs (eg development of regional pride, impacts of congestion in the use of public areas etc, improvements in public space etc). In major events, some of these non-market issues can be even more significant than the impacts on the levels of economic activity.

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