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OCII . . . . . . . ·.·· ·:· .·· .. ·. . . . . ., • ·.·· .. ' ·>·. Y, -, .... :. ~~~:"" salaries (sedor w•seratea.••• 1\Jnd~PM·Of· U;$~·.-•. ~~~~~~~~. ditktris). SUbiradin federal and state· ~ ... come taxes 8\~ .. s .... :..:.;a b ~.-. .· . . . I .. . . . . ' . .. ~P- . . . ' ~, ... ' • ·,· "~~~" f -.the fiscal model . ·. net deflatln '"' the· AJMP ~: Wvel ~Ut-a:an · . · . . , a . . . . . . .I ~; .... , . . . ··.· . r""'~ . .r'!~: ~ : . . , •
·atbnate of real:-dilpOiable:~l-~tt,. •hich ~ ~·~ ~~~~~~ .·· · detennlnlng·the'.outpuas·of•he:~~~~,. ~.. . ,• '_: ..
In tEnns of lts.aenetal e.trucblre .tl\e. t4AP .~••-.•~mUIJ t~i·!>t~er tegiOIIII modeii •. The.:poput.~, i.~·:dittJ,ibuik?n, ~.,4 ~~- ... 1);. .. modell,· ~er, pt';weilbty~ mgjt"8ional. ~i ,IJ*.iflcat~~~~~The clell\oplphkmodel~ , • .npa,, lnCOrpqrates.ctet.Ued.inf~~ on the'ap•sex .. race distf(biltjpq of-~ .tt!'l .,op.latl.~: wl,l~, w~~' (Qmbined tri~··•:•t of:-.~.,.._ ·~-~-ra~~•J*lftc~~ity ~~~~ mortaUty ·rates. and a· ttandald· •sins•·Pf«•·• detea'nlintt·.· the .~•Ju~•• inaeue of the population• The •mount, of dvilia~ •t ~iP,.fiQn:to .. tiJt! state lsdetermifted en~y• • fl.tndion of AI.Sb's.employm~nt powth and ·IncOme relative •qi~.tn the Uni~ed·Sta~ ai· ~--whp1e:. Thus rapid employment growth atlrldS~tanu.t num~Of migr,a~tS; partkularly If the •~ .Job.a .pay high wages ·~ fcr-~~ple, .~-. :i~ oU pipeline- construdiOr~::::;f!Jipatk).g Qqwa ln. tum· keep .a~erap .ln(Oines in··Aiub &om diverlins ec•iv,ly; f~ u.s ... lt!vel•~ . · .· ..
A,_lytis ·.of· the.· clil&ibu~ of inc:o.ne llld . "tllnlt": of Jndustwial . •pJoyment·topthea' with infonQI~. p~ng,the otmpational.mbt·in each induatriai·!M!dol! (thla '-· tM :~l.f~JI·oatrix'• ~lscu ... ln cllapte~;4)' to·provJde estima• of em~t.levels ln 'ach. :~J)I~I Sro.Ui'· , CeniUI·d.ata are •. lhen···ueed tQ·(OIUimad .• _..-tq~ ·of·O«UPJ'tionat.par .. tici.,.tion rates and occupatk>nalt.bor~&JpPJiO CGJhi~lfu,m t!aclt age~
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· race, and sex group. The estimates of O((Upati•al ·~~ :~~ppiie.,. ~rtd· employtnent level$.. are u.ect .. to 4erlve iqc:oi{le .·~ir-td~~cm~ fm: each race. and sex poop and fQI' t~ tta.te popu-a~:p. .. a wl\ole.,·. ·: · .. , ;
The Alaska model has ·• dt!tAiled. ~ . .c\~._1., 'V~s •i~h :·"'•tor source of revenue is estimated· al a function oF~he .·tax siJucttare al\d · the relevant measure of economic·adi.ityi State and loc.l govetr6merit expenditures·. are modeled' by fUnctional catego..y,. each of' which has· ( an associated emplnvrnPnt intPnAitv Rnrt thnc R' Aiff.a..-r.t- ~W,n:.rt ("on .
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regit~tl: ~it attivity. The level of tolll state g()Vern~~ ecJ1Cn:. · di~J"41 is a key policy variable wbkh M ~4ied bytlw PoJicy al~tive . being analy.S, wher1!• .totlf· kx:al expenditures •*. assumed 'tQ be'
···· "alto menus/total·· ·· vemment;lft'eftuta . .re modeled bv. ma" -. equ . . . . . . -- . . . . . -~ . . . ·. , . , .. · . . . . .-· I , JOt Sollrttwttl1 --·;·menuelhlfin& a>NJ tOnlponedt ofl~lmen~, eXplicitly lncorpotated:~. , ,,:, . ,.
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The1Jl0del'· u.es . .evetat diffettnt • .,._...ift:~insthe ~et of production in· each.lndUitrial'lec:tOr •. This. teflectl••tbe .. fad that Ute relevant muul·•nlechanisnw vaty li&Difka~dy.·faom. one~~ to another. tn dNrmkdni prod~ level•, the· model dQSIOe$ in~ dustrial ~ors into three· broad; catecortes: (1) quapu.t detemu.- ~marily by outside f8don~ (2). output· determined .. by polky depiione,. and (3) output .-esponsive to charip! t~ !he lev~l of ~lie adiiiri!y within Alaska. TheSe cat.,.. are, hoWever, not. mutually ~c;IU.sive. Se•;t.f•J of~ub/• bnportant ind\asbin have theit outputs detetmined by ®mbinations of thele factors•
1'he prindp-:il mdusbies whose output 1$ detennin.ed by 011tside f~ are forestry, ftshaie$,. and. the fedetal government Productio-n .levels in forestry and fJSh~,· Alukats ttaditional Jt!SOUrce-based industri~,. are determined· by factors such as .prices on world markets~ :lllppUes of naturahesources, a~nd ·pOlicy ~.;_91\s made by the feder~l. and· st•te governments con(eming the approp~'•te utilization rates fli)r. Alaska's ,-,atural resources. In additloh to ·its regidatory and gen2ral pclicym.IQng role, the feder•l g~vemment sector ·has been, and undot~bt~ly will continue lo be,. Q mljOI' dittd elftllf!nt in tile Alaska econpmy~ The level of fEd~al· activity is determined primarily by nation a! r.oods, t~'ith decisions concerning national defense playing a ~;artltularly··imPQ•iant role. Cieal'!y, the decisions affecting f~ralactivity in.Aias~a are inOu~nced to only a .minor e•tent by economic conditionswithln Alaska.
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· .. Tfl£.-e are~Jn addition to the· major sectors just di&tussed, two tnuch. smaller i~d~stries w.~ .o~~t '- alsO determine'd by cu_tside forces, namely agnculture and ~Uaneousother ~nufa(blnng,,·AgrtcultUre, now and io the future, ;b severely constrained by ~J~ka-s ·hanh dimate. Within the limit$ im~ .by the (limate, agricultural output in Alaska is determined by ·radors sqch IS the availability:o( suitable land, prices of agricultural products,, ancl'government-transpoltation polides. Miscella~s other manufacturing hu beer. treated as an exogen®s sector becau~ it consists ofa very diverse· set of s~IU industries. Rather· than attempt. to· deriv~_ a c:&u~l relationship ·f• tach· smali industr;, misceUaneolli!' rdanqf~-:turing a$ a whole II projected exogenoutiy.
The_ petroleunrindustry is also larzely controlled by forc:ea outside the Alaska economy, but because oi_ its importance it is· given sy«ia! , .. 1d much more detailed treatntent. Pt~bolentn employment and output are projected bi accordance_ With exoginously specified petroleum de·velopment V-eniltios. The peti'Qiemn scenarioe brias tOgether the wide variety of potential exploration and development activities into a manageable nura1ber of coosiatent and comprehensive sets of alternative patt~ms cf Petroleum development. It is a straightforward maHer to constnad new sco2narios to incorporate new infonrtatiort or to t~t aite111ative polides.
_In oontrast to the industries inOuence-l primarily by ouiSide forces or policy decmious~ the output oft~ G"apport sector !ndustrie9 (consisting of trade~ finance-, services, transportation, communication, and publiC! utilitiesjt~ produced to m~t lOcal demands and thus responcb to changes in the level.of ~"''nonUic adivitv · i!'t Alask!!~ Since much. ~f the demand for support 'sector oUtput com~ fron' the hOusehold sector, real dis~b;< pe~el in~ is treated IS'the primary determinintof output, but <wiih hft~o differrent types of·inCf~me··identified as havi~g different .effeCts on loc~i' d~mand. PenonaUncome excluding ··~ndave'; earnings is the primary-~un::~ ofdematV&;;Ind ''e~dave'; income is a secondary, gi!nerally weaker, soun.':'. ~End~.'iVe income Is defined as .the income accruing ta workers living !n «1.\\:~ciion camp~~ or otherwise i!IIO!ated from the genetal etOnomy.
The empirical resulb mdicate tMt ·in rntUt instances the output of the support sector-industries inae1..Hs riture th~n iri ~on t~ the · increaje in penonal in(ome. There are two separcate factors thatot•-erate to produce this result. First, other studies show tha~ 2n the postwar years the service sector in the U.S. economy has tended to e~pand relative to other indu~iri~. Consumers have been devc:Jting an increasing
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'share of.their iotal·ciJ~'* -to .tt.purchase.of ~.n.,U•:-;kind$:of services. IHs. n.Ot •urprilint- ~· ~e thilum4! pbenomenO!\Jn< the AI . 'k' .. ' ··-·;...-. :~:: ;• . . ; '•'•: ,. '' . ' . •'-as • econom,. · . .- .... , ...• _ .. _ ·
The .onct factor C.l~ing,·t~ .-latively rapkl· riMfirtsuppjrfiedor output is more sPectfi<: tO: the Alasb situatiohi ~ the Al~~.econ<Kny . . . ~pands, it. becomd fear~ble: to have mo;e of the •uppcxtlieC:tor~tpUt .·produced locally ratha thart imported from theotller states. the tude, finance, ·and 5ervk'e industriefin ~rticular i»enefit from ·this pr«ees of impart substitution stimu'lalecl·by ~he p..eral e~pansion in .the site of the Alaska ·economy .. The-abare of output produtec:tlocally tends to inaease reiative to. the •. !h•re supplied :from the ou'-lde.·As. a reaulf.tbe rate or growth in the "utput of ihel!t! !ndustlk$ it-grt!ater than the rate of' growth in total oonsumer expenditure. .br totai pe.-scnal income.
The output of the cor11truction industry is· detenni-'ed by a combination of three Internal and external factors. ·Part of conllttuctiQn acti~ty is designed to·supply the n~s of the expanding_ Alaska-~nomy~,As in the support sector, this fi~t portion of construction o.,.tput. js rn~de a function of real disposable ~nonal income. An increase in ~r.M,J.nal inconae ~nd the auodated rise in general ~onomi<: adivity procluce an ·increase in the ·demand !or the construction of both re,sicl.ential .and commemal structures. In Addition there .is lik,ly to be (On•iderable construction activity involved in the building of piiJeli"",_.t4!rminals, and othet·fadlitiet.requi:ed for petroleum production •. This pqrtion of construction outpUt is e~enously determined in-acc(Jrdance with the relevant petroleum development scenarios. Capital expenditure$ by state and local gove,nments are the third source of demand determining the output of the construction industry. This type .of (OMtruction is d~pendent on the fiscal polides implemented by tlle governments. ·
PrO\.--eeding sequenually, as ·Illustrated in figure 6~2, once output .has been determined- in each of the major, industrial sectors, the- next. $tep in the nlodel is to calcUlate :industry ~ployment. A statistka! · relationship derived from the Alaska data is usedJn most :indusm~ to projed. industry employment· as .a functi(tn of industry·: ootp-.t. This relationship can be interpret~ IS a demand-for;..labor equatiOn; it specifies the number of workft'G·tequiP!d ·to produce a given lev~ o( industry output. The suppiy of labOr in Al•ska is· effectively brought into:baian~ with the demand through the proces!ulhnigtation. When an expatasion in ecor.omi<: activity raises the demand for labor, n~w workers nligtlte· into the state to take .ad~·amtage · oi U'e additional job opportunities. Past experience, most recently in cunnection ·with the construction of
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-~he trans_-Aiasb. Qil pipeline, indicates that the supply of labor adjus~ quite quickly. With dM!-supply of Ia""' being so flexibie, it is the demand for- Ia~ that -determines the adulllevels oJ employment in most inclusfrinh1 the'.Ai~ ~y.-~ ate, hQMvea-, a few industries ·lor ·whkba difi~:mt ~ure II uaed to project Industry employnttrit, In the petrol~m.sector, .commerdal fistdn& and fedel'al&ovemlllftlt .thel~vel ofl!ljfpjoyment,Ji let ex~y ...... state •nd J~i;pemlnerlt;_ f!xpenctitu~a determine -~t.
Real wap·rates by industry . .-detemdntd:both bynaiionaleconomic conditions and·by -cor.clltions in the Allslca .. ._market. Th~ real wage in the u~s. '- repret'.-mted by the a;erqe weekly ~·se deflated by the consumer'~- index. ~-the real wapln the Q.S~ riles, the RaJ wage in Alulca _.to D\OVe in the aa~JM;,directktft, thoup when tbe demand · tor labor grows more rapidly than the supply In Aluka, "tlpt" labor marketa develop with a reeultins upWard.,._.... on wase rates. This tightness is particu .. rly 'likely to;~oct'UJ' wa. larp exopnous development~ OC;nlr;. 'I'M upwa:d-p,,.._on the real wage eventually dissipat8, but the ef(C!CIS. w1D be spread om 111!\feral yean. Nonetheless; over the long run, wage rates in Aluka ate vuy doeely related to -Wages and pric.-e. in the United SbleiM a wide. It would be impossible for it to be otherwise so long u Alaska is open t~ migration to, and from t..'u! other states. If waget in Alalb became ~cessively high relative to the tnt of the United States, larp numbers of workers would migrate into the state, thus tending to fcn:e w..- down. Conve~ly, if wages in Alaska wt!ie too low, there would' h a shcrtage of labor, tending to force wages up. Thus ov·er the -Iotts run, Alaska wages .have to maintain som~ !Crt of reasonable relationship with wages in the United States as a whole.
Although wages and salari8 are by far· the single latge$t component, persona! income also includ~ in~RSt, dividends, rental income, proprietor's income;~ ~nd ~lianeous .other l:!bor incgme. Nationwide these nonwage a)mpoMill$ IJlilltE up about a third of total persona! income, ~~ in Alaska the nonwage components are less significant and. make lip less than 20.pen:ent of personal income. The other sources of income are taken ·into account throush a ~lations-~ip that makes total personal income a- fundion of wage. e'minp, with enclave t;nd nonendave earnings entering separately~
Changes in the level of the· Alaska reletive price in.dn are the sum of two factOrl. Over time the growth ·of the Alaska economy results in. ~onomin of.Sc:ale t,n tb~ produ~on of goods &hd services which pro-
A Model of Alaska 95
. . duces a d~wnward secular trend. i~. Alaska's pri~ iridex. This is. irt·· .. corpora ted through • scale effect whiCh is • function of.ttJ.e ~size of the
Alaska economy~ ln-•dditioil. tile price level will be, influenced J.ly::c;ora."' ditions_ i" local .factor nla .... , ,Jil()li:~bly _the l•~t ma.-~et .. When
. ·the"' b · ap unulu•lly· rapid_ s~d .in the dc!man.d f(tr: iabOf, "tljer' willlJe· upward ,.._ure on PriceS• This • refl~t;d !n a. ~yclkatprig!'l!vel · fac:tor which is a.functle»il oi the. rate of_chanJe in·e~p~oyrnent. . ' . ·--\~( .
Pltpulatlon 'Moct~le
Pcpulttion in each year is Joindy :detertnined· by natdral increw of .~he. previous year's ~··lion ana ftet ~gration \figure 6.3)~ ..,. fOrme~ is basecl on -ge-:sex~race-spedfw.fertility and mortality rates. 'the latter is based on an empiri~lly d~rived equati'"!_ relatin$ net migration to
· . the change ~n employment opportuniti~ in ~..Iaska aJ,ld AlaJka's'real disposable personal income per capi~·relative to the.U.S. average. The th~ ,main. ccmpon~ts .of populati"'\-natives, military, and civiliap nonnati"II!S-:-«!ach receive separate treatment because of their distindly different 6aradmstiQI. ~- · . ·
Native births are detennined in -the model by the nuritber of females in each cohort of child-bearing age and· the fertility rate for the cohort (the model WJel five-p1r CQhorts). Within each nativ~ age .. sex cohort, a percentage of individlllls die, u indicated by the corresponding mortality rate; and others age into the next cohort. Since there is·assumed to be no net. migration of native~ between Alaska arid other areas, the
. change in the native popWatiO,n is attributab1e rolely to natural increase, that is, to Ute e~cess. of birth~ over deaths. · . The size .of the miliiiiry popUlation, which consists. of military per"' sonnel and their dependena., is exopnously 5pedfied~ It i$ aS&urn~d, that. the ageGsex -~nacture remains stalk; II personnelleavihg thf! state are .-eplaced by indiViduals with simila.- charact~ristic:s. . .. ·
Natural increase for the dVilian nonnative populatiol\ is determined by .. the um~ p~ees as for the native population, except of course that the appropriate. fertility and ·mortality rates.-lre used. Net· migration is
. a fundion of the change in dvijian-non"atlve employment· and. the Aiask:./U.S. ratio of real d..,._ble .· pe~Stlnal i!1eome JM!r capita. Migrants, accorditng to this formulation, are drawn to Alaska in respc:mse to an increase· in employment oppOrtunities and ri~dng inconte$~ Conversely, when empiO"fit-t fal~ arid the .Alaska/U.S. i~e diffetential · is nan:owed, net migration ~ome, negatiVi!. Migraillts are djatributed . ' ,. ' ·,
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#J*tt6n or '!1~1 -*''~~:~.ed _on .t970~Ce~sf(']4ltaJdr<At•~ka~ ·~e-~lemen .. of the~s~ll :matrix aJe 'held ·consta"t dUring !lim~daliort• . ··• ·' _ . ., ·.The "fl~t~~~·· (full,;tl~). supplies of e.Ch ~~~~n~are··det·t- . mine4 b)'_,the ,ge-ra~.:~;~~ctiin! ot th~ popqlaticm" aq inJ)Ut~ ·· ~~e ~emC.apili¢ ij} .. if and ,a st!t of ~patlc*al partidpati'"' ... ~. spedfac fCM~" aae~ ·~".aijct.~, ·~mated f~ ·public: J]se~SI~pe(:ensUs data. ·Coft\bining the·· tWo ~tef:111ines· 'he' OC(1At*tion5 su.,Pii~ by •Eictct-. age-race~~ -~p' .ill. i~K_';populati~ and als() .tb,. J«riaf ·flnt~~und $UppJie$ Of each Occ:Up.ijoft: lfderrilnd exceeds suppayilfif.' «<Opittion, u is •umed that throust1 ndpation the aupplies of that Oc:o.ipatidn . will increase*. thus cle.ling "thl! _mark~t Sintilarly, .,. the ~cuP~lioll!·_is
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in cversupply~ thE migra~:adj~t will ... ~~··upPI~.- Asau~ing, ·-that the a~jusbnents .Ire_ sp~jd ~~~teiy ov~. all· popula~ion _ . subgroups, .... ~ wQly;eld the.market~eaaingset ofoq&lpatior.a} ·parttdpation tats. : : . . . . •/ .. ·-.. · :'--:~··· ·
. The marke,t-c'.earing. C)f (ie(Upaticnalpartid~tion rates, (Q"'bined with the age-:race:-.X d~.,_.tlqn, ~'es~pational empJoyment ·· · J)y age, tiCel etad &eJC; ·wh~h ·!ftU$t thert ~ linked tQ t)\e set .Of:O((U;. .
. patio.-al' wags. Each occupation's Initial w~ge is ba~a on P~blic .Use Sample· data. on ea~inp 'few ,full-liiJle employee$ for.196?. Ea~b~oe;. _ c:upation'• waJe ··~ pntjeeted, as pWlng at.the weighted:average of growth· rate$ for industry wage· rate$,. Whkh' are e5timated~n- tJt~. !~!CQ .. ·. · nomic modeJ.·Ttte.weightt ued are ~ved from the s2dll matriic 'b-a$ed on. the shares ofeach Ocalpation's em~loy~ent:&~coufit~ fc)rb)•_each industry. . .. · .... . : · _ ·: ...
AlthoupJhe O«Upationallabor markets ·are designed to. dear ~n a . · tull-time equivaler:&basl•i m•ily i!R;p$oy~.do wqrk Jess tb.q\t~••ftlfue. . U&ing adjultn'ient paramet~rs denv~ :fi'p~n :Publi~ U~ sampiJ data
• ss*ific for t!ach rise. race,-·and s~ grout'• full~.time eq .. \v~lent -em~. · . ployment·i•coat~~trt~ intd totiil ~piC)'Jllerit (full.thn~andpt~•tiq\e) f(lr each group~ -Tt(~·ildj~$UD~nl plr~metep are al~-u~ to convert full-time equivalent ·wjllps intu age-rat:e·~~, ~pedfic :Wages giv~en ·the · differtnt proportions of full··•ime' workers. in eacb group.· ·· ·
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'·"Thl! J1i!Xt ~~tel ~~~~le-n ~itealnlnP dl.lribe.lifll\'j!l,~{ . to,dothis,·•nailu~ptlort,mt~~tbe.._.abOutthe~hap&·O(t..-·e•mnw .·· ..... ·~ subdistributiQnsfor·~t(h•~,..-e.ota~pa~ tltqury.)V¢ ass~me: (i) nonnafitya~· (2)· ••. ~--t~ .. ~!: Q( v.~ri··,~-~~ r~~, ~'l~. ,·.· ratio ctf~the ··~~~rd devl•tioli·. ~'~~· 19·-.~ ~~er?! .e~r.J:iit\pr.•s; · ·: c~lculat~ ~~ .. ~u~Uc Use ;~apl~:aa._, .~!~; ~~'~Jo,t, .eac~ · dlltributiqn~,,Q,vetl th~ .~an, t¥J-~":" CJ~vl«t~,~''!!l~~~!iW~: . tJle earners in e~b PJ.PUiation _.t,.jroup ~"·"'·:pla~·Jnio in4~···' categorie$1, u.tns, the ta~es Qf } .... nonna. ·.-tribP .. Oft. ~~di~fd~' .. butions, are calcqlated toi.'~Ke. en.~ ~18~~ :~~ ,alsq ~~~~'"e~Ge~ ' categorieS. •. Etrtp~yment ilt~. (•J+»t•;J'~r ·:«.on9mic~~~~ ··~iv~ ··.·. population),· ea~inp P!!' 'Yorker,,,:•nd ineome,_per c-.pita fCJr ea,dt race~. . sex group are. also deriv~·. ' : ;, ' . ,' ' ' . ·. . '. ' 'i : ., '; ': ' '
The final step'in determining ;tlje;dlsttibQtiOI\ ~finc()me is ~a derive · the· distribution :of non~a8e ·.~n<QMe •. Most· qf .the· in(C)IIle .otbet .~han earl1.ings is receiv~ .by the Working popu,_.t~n. _.Again, using P~~~~~ •· · Use Sample. data, the ratio of total inc:otne to l'b!Or: incollte is-~alwlated for each age•OCCUpltkm categ~, caPturing li(e~cycle effeCts.·. These: . '<
ratio5 range from t.OO (no nonlabor income)fOl' 20~ tP 24-.yea!l'-old sales workers to 1.09· for wolters 65 ·and over. When• these ratios are·· applied to th~:$et of calculat~ mean wages, we can then_ generate the total income distributiml. . · ·
Fiscal Moclul~
The fiscal module deals ~in· •tail with the ccmpon~~ts ofll) sta.te reve~ues, {2) state e~nclib,ues, (3) local revenues, an(! (4) loc"l ex .. penditUtet. For &Krlptive ,..~, .total•tate revenues caw\ be divid~ into four categorin, each of. which is hart~led in a basit~lly · di,ft!rent. manner within the· model, * figure 6.5. The categorin, .. in ()rdet of· · importance in 1977, are petrol~m revenues, nonpetroleum endojenous revenues,_ federal transfers, andlntemt earnings on accumt~la·~ed trust funtfbalances. · · · ·· · · :: ·
Petroleum .-evenues· are en~ exCJgenously into. the fi,ca• model from the petroieum scenariOs. The revenue sou~_within this c;.teao..Y are oil and gas severan~ t•x~, ·oiJ .• nd gas royalties, ·stat'!.p~ny· ta)(' on certain petroleum~related (apatat faci&UiEs (prirnari.~y the ,oil pipel§lte)~ . a ·sped1l corporate ·in(Otne tax ~n p(Oduction a"d tran~p>rtatlon of.oil: and gas, and bonu$2$ from the leasing of stat~ land~ for petroleum explota~~on and development.'J'he state rec~ives, .in addition. . ./ il'-·small
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; ·ca~·tie ffi.,(t~led -.,.fundi~.·(Jt~h.~ J~et oJ: ... te~~~~~~~~~tv:: . ·. Withintb,. ·sblt,e~; P~l·. i~t·~xel~~re· Jif>4eled in.·the•j~ate$t.
· ·- ·. d,•taU;. Th' ·l'l!lationihipl·•firilng .$f.te 'pefsOnat i~e:ttJx Jiabiliti~ . ;Jre derjv~ from d~ta· on federal per.JOnal in~ lei tehltns (tlxable . :income for P•~tpOses of the st~te· :tail dif(e.s from tbltot the: tecteral•.tax. · only by the i~clusi()n of:the co5tof.livlng-a1Jowa~for (~I employees . . :in Aiaska and.the ~xdusio~.of miiit~ry wa~and.9lllaries)~·lnc.olbe ·· taxes~ bgth fEderal apd st4te; are~alallated 8$ .:.ftm(tiefft of~ -~~b,le .. income which is in blrn 4eriv~ from the estimates of pa5Qnal irite>tne produted by~~. Pllld;!l. The.,e~~• !,'l!ill~js+ tblln ·· personal income tax~, as listed in fi~~ 6.$~ ;are, esti!ft~t~ -!:!,~ncti~ns · .<Jf one or more .of Abe api*Jpriate economic v'ariab,e~. Mlltf).r fuels. taxes
.· .and.vehide license fees, for.~xagaple, a~ relat~ t~~e~!~.ti(l,nj ~here~s · the corporate income blx it a fun,etion of fbe value of.i~dusbi~f'hQtput. · .
Although faleral transfers Conte through~· larg~ variety of !'I'Owiuns, . for aimplidty·th~y au~ tieated in·theagregate .. Withilfth~mod(!fand· are simply taken • an addition t9 &eneral fund revenue5 available fot · financing expenditum of any kind. ·A· cross-sedlonal· anai)'Si$~of the . s~te'indiat.S an bt"'"relaltOnship between per~pii.'ffdeqltJans:o· .fers and totaS poptall~·.This ~••tiollship b.a$Su,med tc$ pe._ilt In the .. . f~tu..e .so that· filrthet ln(mne~t&:tostate populaHQn:· other .thinp. W'ing equal~ !educe the level of per capita federal· transfers~ i'he te.Jitk»MJtip ·
· isadj .. ed,how.W,r, for,lncmseiri c:osts·whim w~ld inaease ...ansfe!'$ · .and al$0 for inC..ases·Jn the t•a •~nt of Jhe led~•• budget a~Jc)cate<l · .
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Durins ·)'eara When the ~ dev~Jopmt!ntp~~- ~ atlts pe.Jc, lhe sbte ·111aY 'VeU ~. abl, tQ ~n a •Qipl~s~: th• ·fun~· may_ .!Je· •c¥: ~IDW.ted in •· ~~ fu~4 or other· ~ of. acro~nt •nd}Jtv~~ in earnlns•.-·.'The __. may simply-~ .finandal (nstrtlm~~ or,·they .m~y._~ ptldudive· . ._.. wlthio AJI .. ·.itself; in either.c.R,t~ey··wiJl .. · ge~te;an ~e •••m .tt~l ~ilr'adttrt~ ~tate 1'11!\renu~~ · ,: _ . ·, ~ .. · · ... Th~l state 'xpencli~ -~. P:f .tltf fi-c.gl model h~. two .. pli~ary CQmponen~.'fh~·f-.t 1$ a ~tc)f alternative expe11~i~re rilles by :!Nhidt a model user can. spet.ify how Ut~-.g:~wlh oft6tafetate s~nding b ·to be determined during model utilization. ~.The second is a -~implifi~ •
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A Model ot Alaska 102
description. of bow tqtal spending is alloc:ated aroung the· individuaL~ fundamental eoroponents. The 'proc81 • outlirted in figure 6.6.·
. ·. Expendim~ 'frules" are. US.ed ra~er thin ~pi:rtqlly. derived relalion$hiPf. in: Ord'r to rot"~ tbe modEIJIQI!. Ulefui for· JM)liq ana~ysis. Histori«:al rei,Uooships .~een sovemment expmdltum. and underlying economfc variables ~pch. ~~.: populatlQii,· .income~. $tid revenUC!S are not nect:S$arily th•·.nolt v•lid or constructive _relitionshipa to build into • policy Jqodei.This ~ .,.rt;~lady .b'lle in dses where the economy· is changing rapidJy,.of wt.ere the n!venues avaUable ~o fUnd stale ex•penditures.have~n dras~cally altered,.esin the clseof Alaska. Thus, rather tban using eco~cally determined ~!Xpenditure equationsr the ·growth- of total expenditures is determined by fi~l deciSion rules specifi~ by. the model Wier. · . . ·
Several alternaUve rascal rules are a~aUable btthe m~el to determine
total expenditum: t. Real per capita ~ditum. Growth in ·real per c:apita 8penditures occuni at an exogenC)U!I!y determined rate. 2. Income elast1dty of expendlbne. The income ·elastidty of e-~ndjt~res is $el exqgenously, based on. various income concepts such e2s total or to~l net of transitory income. · 3. FiXed savinp rate from petroleum reven_.es. Total exFnditures are equal to total revenu~ minus a percento~ge of r::~venues from petroleum taxes and royalties.. · · 4. FixEd s~ding rate from ~troleul1.'l revenues. Total expenditures are r:~·r!al to no~petroleum revenues plus a .portion of pe~roleun•.revenu~ t\.~ch as .1.- ''annuity'' alaalaled from total expected future pe-
troleuilt re·venues. Once the tOtal level of· spendir.; I! detet.""'nined by the fiSC-'31 rules, ·
state expenditures (after allowing Wi'debt service payments) ~redivided into operating and capital expenditures. Operating expenditur8 are then allocated am&ng the variouii fundlonat a.reas of government: ed· ucation, health, social services, natural resources and environment, public protection, administration of jJJsiice~ economic· and. tommunity development, and tr~nsportation~ This permits the model to recognize that the Individual governmetttal functions· are growing at different rates and changinglnrelatlve .importance, Th~ different· functiOns are al50 characteri~ by diffmnt percentages spent for wages and th~fore could be expec:ted to gen~ra~~ different economic impads per dollar
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.A Model of AVaska 104
spent1 sin~e th~ • expendib.Jre leakage$ out of the regional economy ·
. would 'ordinarily he higher for ncnwage than wage eipendiblres. The model contains three optiOilS for allocating operating expenditUres
among program categories. The fitJt of the three options projects expenditures based on the perceived demand fC?r th'* EXpenditures. The expenditure submodel begins with a sm.ll lfCH*P of employment, price, and population variable& which have ·bee!l $elected as proxies for the complex of fadors undedying the demand for ea4=h of the spedfic programs to be projected. 11tese variable are used as explan~i'.lry vari• ables in regression ~uattO.,s whim reitte growth in the .prt~m cat· egQry to growth in the assumed client popul1don. foe' example,. school ;3ge population is used to detennine state ftnartdal aid to di$trid schools.
A second expenditure allocatiort ruie that cart be selected holds the level of expenditures for each program constant in real terms per user of the service, such as constant state aid to loc:al schools per student. This differs from the first type of estimate in ihat it does not permit real expenditures for a category to grow in re1.! ~r capita terms .. Thus it represents something of a maintenance budget and highlights the demographic effeds on the mix of expenditures and on state wages and salaries. ·
The final altemaiive method of allocating expenditures among pro-gram categories makes the expenditure for each program an empirically derived fundion of total state operating expenditures. As the size of the budget grows, this rule produces gradual changes~ based on past trends6 in the proportion of spending going into the various programs.
Capital expenditures are classified by source of funding (general fund or general obligation bond funds) and by fun.ction (highway or nonhighwaj'). This classification is useful because the two sources of funding have different effects on the state's ability to fund current operating expenditures and because in Alaska exJJ'!nditures for highways have lower impacts on construction value added. than do nonhighway expenditures. -
The next step in the fi~al module is to .look at the local government sector.'~fhe primary sources of local government revenues }lie the local property tax and transfers from the state go•1emment. The Joc:al property tax base has. two compOnents, one of which is based on the value of real property in the state .. The second component of the local property tax base is the value of petroleum related capital equ;pment subject to property taxes. Only ~hat portion of petroleum property that actually
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A Model of Alaska· ~· 105 ·:J
lin within the boundarie$ oflocafgovetnment ent'rs into tht!.baSe' for: !ocal.taxes. ·· ·· · · · ·· ' ·
Rev4!nue transfer$ from the state c~sist of a ~~rl~ty ofsejJar.teU.!rns, .· · the largest of which is educaticlnal tran&fetS .. Eight dirferen\ed"eal.lonal· · transfer :programs are projec:ted separately, genew"~ily on' the 'basis: of· ch•nge in the,pertinea1t schlllOI-as' population poups. Sha~ taxes . and general revenue siTJarinl are other important .sources of transfe~ · · ., ·. · accruing to loc~l goven\filf!~ll$. These sources iJre determb1ed by sp:cifit: policy decisions or follow a per capita revenue· sharins rule. The te- . maining sources of local 1revenue include . federal· local transfers~ mis~ cellaneous fet.S, and.otl\el:.loc:aJ ~ .. Federal. transfers are exogen~sly specified, and other loc41l taxes are detennined on a per capita basis as .a functaon of persortal inl.-ome per capit•. . . . . ·· ·
Local govemment e~penditures are calculated in ii' 'simp!er manner than was useclfor stattt expenditu~. Total local expenditures are simply ·-.>
set equal to av~ilable revenues; that is, local governments are .assumed to run neither a surplus nor a deficit. Total local expenditures are then allocated among .the following (ategories: locally generated education
. expenditures, expenditures of educational transfers from th2 stat~. and rlG~edu~ation !ocal government expenditures. Education expenditures are al~ divided into capital and operating outlays. Wages and salarie$ of local government workers are estimated as a function of locarexpenditures for personal services, which in tum are estimated as a function of operating. expenditures net of debt service. Expenditures of .locally .opera~ p~blic utilities are estimated separately. ·
Both locally gen~ated expenditures for education and exp!riditures of locally operated .PQblic utiliti~ are estimated as functions ofpersonal . . income. The latter serves as a proxy for the demand for the services · · of local government. Because state transferS for el~caticin ·finance over 75 p,!rcent of total local expenditures for education~. state transfers are the· more important component of total. education expenditureS.· LOcal . operatingexpen~itures for purposes other than education are estimated on a real per caplta basis as a function of real. dispOsable income per capita~ This is a relatively etrong relationship over the l'(~~torical. peri(Jd and insures that growth in prices and population willincrease thl!! leve! of expenditure, as will increased real per capita incomes of the rom-. munitiea in Alaska.
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MAPS·~ VariaWe · n'(! "' ,,.-:::.,;;.
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· · Hlftodcat Testlna ·
A inQdel to be used in~icy applkatlobs ObviouSly~· to. be tested to (Onfum itsieli,bility~ Urtf"~.!~~y, :then! me nO ••l'd~u~e~
. nor agreed o•l aU~;.f~J~plementlril such test.. ·one· tell eomll\Only. .a(>PI~ .tq eci:Jnom~. modtls 11 to -.mine· the ·•~{d. •tiatical measuJes{R2, 1-statistks,.ftc.) for tM stochastitequjtkd in the model. Becau• this approach lgrtore$c~.interactlons am.g·equatiOns. only
.. a limited amount of informatlor.. is pin«<. Aho there·~ a number of models. ind~ng the MAP. model,· that rely on n«a«<nnrnetrk technique$ for. ~timating sc),ne or aU parts· of the ~t None of the k•Y · rela~ipsin •n input~tput moclel; tor eample, ate ec:onometrkally estimated. . . . . . . · · .
A more compreMnsive 'test ofthe ll'lOdel's behavior .is· provided by using t"' ~pirically estimated parameterS to ..un simufat!cms· over the period cov~ by the data. The Jelailoo~hips in the ·MAP model have
==:::~~it,.":=.,~t:::;:~l$~~~\ stQChattk equt~ w• estimated .usingordinary least squares,, after
. · test~ ~ingiwo-stageleast sqU.res with principal eo111ponetlls prodUced ·
. results. virtUally khntkal to the ordinary least squares estim•tes. Using actUal ~aluet for exCJleftous and pCJiicy variables, the model WI$' shn· ulated over the~ t~ to 1976.1be ~ean absolute percel\t errors (MAPE) ~f.the )tey agrepte variab1~ ate presented in ·table 6.\'. Although t~ are no offidal standarcl,.or tfstl of significance for MAPE
. c_!tJ.~tks, .thEse results are roughly iGmparable to tho-~...e· :reported for · ;~-other .~onal m~l~~2 ., · ·
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