George
Goldman
University of California,
Berkeley
Anthony
Nakazawa
University of Alaska
David
Taylor
University of Wyoming
Source: Adapted from Tourism USA, Guidelines for Tourism Development, The University of Missouri, Department of Recreation and Park Administration, University Extension, revised and expanded 1986, pp 56-57.
The money tourists spend in a community is the benefit which people probably recognize most readily. Other benefits might include improved recreation facilities, expanded cultural and social opportunities, and pride in one's community, but additional dollars provide the usual appeal for tourism development. These dollars benefit sectors throughout the community, including those not directly connected to tourism, such as the construction industry.
Communities contemplating development to encourage tourism can estimate the amount of money visitors will spend in their area. These estimates are useful in several ways.
Steps to construct a custom income multiplier
Measuring visitor expenditures
There are four methods that communities may use to collect estimates of total dollars spend by visitors to their area.
Diaries
A diary format that continuously records spending is the most accurate method for obtaining expenditure information. Diaries require minimum recall on the part of respondents, which is advantageous if highly detailed information is sought. There are two major shortcomings, however. First, recording expenses may change the tourist's spending habits and therefore bias total tourism spending estimates. Second, participation tends to be low because few vacationers welcome an additional chore. Innovative incentives might offset this problem.
Tourists with certain types of personalities may be more likely than others to keep diaries. Personality differences might also be reflected in spending behavior.
Exit interviews
Another method of gathering expenditure information is to interview people as they leave an area. People can be asked to estimate their total expenditures for the entire visit to an area, or for only their last day there. Since fewer people will refuse to complete an exit interview, you can expect to find a more representative group of respondents with this method than with diaries. People will tend to forget many expenditures, however. They will remember better the expenses from the last day than from earlier days.
A variation on the exit interview is to interview people randomly in an attempt to reach them on each day of their visit. This reduces the bias found when interviews are concentrated on the last day of a visit, but it does not eliminate the problem of recall.
Mail surveys at home
Questionnaires may be sent to visitors at their home addresses, using a random sample derived from various registration data. This type of questionnaire typically gets a higher response rate than the diary method, but a lower response rate than exit interviews. The time lapse in mail surveys increases the tendency to underestimate actual expenses.
Surveying tourist-related business
Businesses directly affected by visitor expenditures include hotels, shops, and restaurants. Information gathered from proprietors or managers of these establishments is subject to their ability to differentiate between tourist-related sales and sales to residents.
Measurement of impact on local revenues
There are two methods to measure the impact of tourist expenditures on local revenue:
There may be analysts who can assist a community with this task. There may be consultants or perhaps a council of governments, a regional development organization, a college, or Extension faculty who would welcome the opportunity to cooperate in a project of this sort. The cost of analysis may influence how the community chooses to address this need.
Use of regional or county revenue multipliers
(Note: Revenue is used here to differentiate from family income. The usual convention among economists is to speak of income multipliers, but we are talking of changes in "income" throughout the local economy, not just to families.)
Regional or county revenue multipliers provide a rough estimate of the increase in local revenue as a result of tourist related expenditures. A multiplier is a factor used to estimate the impact on local revenue from tourism sales.
Evidence indicates that in the northwestern United States local income from tourism falls within a range of 30 to 50 percent of tourist expenditures. (This should not be confused with "revenue multipliers" which are much larger.) In most areas, a $100 tourist expenditure can be expected to increase local revenue by $30 to $50.
If a multiplier is not available, a ballpark estimate can be made by considering the following factors:
There may be an economic analysis office in the State government or in the business department of a university that knows of multipliers for this or a similar region. The U.S. Forest Service or Extension Service through the IMPLAN program may be able to provide the multiplier estimates for the area.
Construction of a custom multiplier
If the program is past the preliminary stage and the community already does considerable tourist buisness, it may make sense to develop a custom multiplier. Information required is:
If a custom multiplier is the option of choice, the community will usually need to acquire outside assistance to complete the work.
Examples of visitor expenditure
patterns.
The pattern and volume of tourist expenditures will be the first type of data
collected in evaluating tourist impact. Of every $100 spent by tourists in Arizona
in 1984, for example, about $26 was spent for food and beverages, another $26
for lodging, a little more than $23 for transportation, $7 for entertainment,
and $15 for retail purchases. The money which accrues to local residents depends
on the amount of tourist expenditures . The more money each tourist spends in
the area, and the more tourists who visit, the greater the increase in local
incomes. The amount of local income created will depend on the pattern of expenditure
by the tourists and on the amount of goods and services that can be provided
by the local community. For example, if the expenditure is for fuel, the money
quickly leaves the community to pay for the fuel, unless there is a local wholesaler,
when it stays in the community longer.
Percentage of goods and services
produced locally.
Also important is the extent to which different sectors within the local area
purchase goods and services from each other. If the local restaurant is able
to purchase food from wholesalers in the region, more of the tourist expenditure
will accrue as local revenue. For sectors important to tourist trade, it is
useful to estimate the percent of each purchase that is produced locally. Interviews
with knowledgeable business people in each sector can provide this information.
Again, some economic analysis office in the state should be able to estimate the effect throughout the economy of money spent locally. For example, when the percentage of goods and services produced locally and the distribution of tourist expenditures were computed in one area, 32 percent of tourist expenditures went to restaurants and food stores. Of that amount, almost 59 percent went to local businesses and residents as additional revenue. As might be expected, lodging is the sector with the highest percentage of goods and services supplied locally, and thus the highest potential for generating local revenue.
Percentage of money spent locally.
Once the percentage of goods and services produced locally has been estimated
and the pattern of tourist expenditure established, the amount of money coming
into the local area can be calculated. If $28.70 is spent for lodging, and if
38 percent of this sum must go to buy goods and services outside the area, then
62 percent of the money, or less than $18, stays in the local community. (Note:
We have neglected the role of taxes, which can partially flow out of the community.)
This is not the end of the matter, however. Recipients of this revenue will spend a portion for goods and services, some produced locally and some imported. The motel proprietor buys groceries at the local market and gasoline at the filling station, generating additional local revenue. These second round recipients will have less of the total money to spend than the first round recipients-those who received revenue from the initial tourist purchase-and third round recipients will have even less than second round participants.
The result of this "chain of spending" is a multiplier process whereby money spent locally is multiplied to give the total impact of the new money spent in the community.
The amount of revenue generated locally in the second, third, and subsequent rounds of spending is determined by the same considerations that determined the direct impact-the proportion of money spent on local goods and services, in this case by local residents, and the percentage of these goods and services produced locally. Figure 1 takes a $200 tourist expenditure into the second round of spending. Taxes are treated as a payment for services performed by outsiders. $200 in local purchases created $100 revenue for local residents in the first round. They, in turn, spent $55, or 55%, at local shops and businesses. The other $45 went into savings, or taxes, or into other communities as a portion of the revenue was spent outside the community. The $55 in local revenue adds to community business. The addition to local economic activity, however, will be less than the amount of the sales. If 40 percent of the goods and services purchased with that $55 are produced locally, then another $22 will be added to local revenues, which will lead to further increases in local sales and incomes.
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Figure 1. An example of a $200 Tourist expenditure on Local Revenues in Western City, U.S.A. |
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First Round-Direct Impact |
Second and Subsequent Rounds - Indirect Impact $22 Increase in Local Incomes Second Round |
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In the literature on tourism, it is not uncommon to find statements to the effect that initial expenditures by tourists are multiplied many times over as a result of subsequent rounds of spending. Such statements may be misleading. We are concerned not with the volume of sales attributable to the tourist expenditure, but with the portion of that expenditure which ends up as local income. Smaller and smaller portions of the original expenditure continue to ripple through the local economy. The multiplier accounts for the actual economic size of these smaller and smaller ripples for a more accurate estimate of the actual economic impact.
Western Regional Extension Publication
WREP 145
December 1994
Issued in furtherance of Cooperative Extension work acts of May 8 and June 30, 1914, in cooperation with the U.S. Department of Agriculture, Lyla Houglum, acting director, Oregon State University Extension Service.
Other western State Extension directors include: Anthony T. Nakazawa, University of Alaska; Salei Afele-Faamuli, American Samoa Community College; James A. Christenson, University of Arizona; Kenneth R. Farrell, University of California; Milan A. Rewerts, Colorado State University; Chin Tian Lee, University of Guam; Noel P. Kefford, University of Hawaii; Leroy D. Luft, University of Idaho; Anita R. Suta, College of Micronesia; Andrea L. Pagenkopf, Montana State University; Bernard M. Jones, University of Nevada/Reno; Jerry Schickedanz, New Mexico State University; Antonio Santos, Northern Marianas College; Robert Gilliland, Utah State University; Harry B. Burcalow, Washington State University; Jim DeBree, University of Wyoming. Extension invites participation in its programs and offers them to all people without discrimination. This material is based upon work supported by the Extension Service, U.S. Department of Agriculture, under special project number 93-ERRD-1-8501.
WREP
144 THE ECONOMIC IMPACT OF VISITORS TO YOUR COMMUNITY
WREP
145 MEASURING VISITOR EXPENDITURES AND THEIR IMPACT ON LOCAL INCOME
WREP
146 ESTIMATING VISITOR DEMAND AND USAGE
WREP
147 COST-BENEFIT ANALYSIS OF LOCAL TOURISM DEVELOPMENT
Community leaders, or others involved with tourism-related community development, can use this series of fact sheets to lead a focused discussion on the economic benefits of tourism. Who will benefit from tourism? How many tourists will a new project bring to the community? How much will new tourists spend in your community? This series of fact sheets is designed to address these questions, which must be answered in order to realistically evaluate decisions related to local tourism development.
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These are publications of the Western Rural Development Center. WRDC publications are sold on a cost-recovery basis and are available on request from the Center at the address below. Copies of the regional tourism fact sheets are $1.00 each, including postage in the continental U.S. and Canada. The Western Rural Development Center offers its programs and materials equally to all people. |
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Western Rural Development
Center |
