Transboundary Income and Expenditure Flows in Regional Input‐output Models*

Nearly all regional input‐output models have been constructed without a proper accounting of inflows and outflows of personal income and personal consumption expenditures. Typically invoked is a no cross‐payments assumption, analogous to the no cross‐hauling assumption for commodities. We present a new accounting framework based on the classification of flows according to the location of income generation, receipt, and spending, and argue that only flows endogenous in all three respects should be part of a closed regional I‐O model. We use the framework to compute the upward bias in multipliers in a typical regional I‐O model. We also present several methods for estimating transboundary flows.