How Does Tourism Impact our Economy

Haas Center | March 15, 2019

Measuring the community economic impact of visitors has always been a challenge. When impact models are developed, they rely on standard industry definitions that represent a single type of business. But the tourism industry is not just one type of business. It is made up many different types of businesses – everywhere a visitor may spend their money is a “tourism” business at that moment.

Because tourism represents multiple businesses, different techniques have to be utilized in measuring its impact. One very basic methodology estimates the number of annual visitors, multiplies that number by the average spending per visitor and then multiplies that direct spending total by a calculated industry multiplier to reflect the circular flow of money throughout a community, and the various industries touched by the tourism dollar. This basic methodology can be refined by using a more sophisticated input-output model and more industry specific multipliers. But both of these types of modeling require that spending in the economy be apportioned fairly precisely between residents and non-residents. Attributing spending in this fashion can require expensive data collection and sophisticated knowledge of the local tourism industry.

One solution to this attribution issue is utilized internationally in the Travel and Tourism Satellite Account (TTSA) concept. The System of National Accounts (SNA) is the internationally agreed standard set of recommendations on how to compile measures of economic activity. Utilizing the system allows and apples to apples comparison for economic analysis. The TTSA is a sub-accounting systems that acts as a standard framework to assist in measuring the demand for goods and services by visitors to a particular region. Utilizing the system permits localities to measure tourism’s contribution to Gross Domestic Product; identify tourism’s ranking compared to other economic sectors; estimate the number of jobs created by tourism; estimate the amount of tourism investment; and identify the tax revenues generated by tourism industries.

The TTSA presents estimates of expenditures by tourists, or visitors, on 24 types of goods and services. The accounts also present estimates of the income generated by travel and tourism and estimates of output and employment generated by travel and tourism-related industries. Models that utilize these accounts are often more accurate in their estimates of the tourist industry impact than less sophisticated methods.

For example, Escambia County reported receiving over 2.6 million visitors in 2017. These visitors spent over $802.5 million dollars during their visits. If an all industry average sales multiplier for Escambia County of 1.35 is applied to this spending, then the economic output of tourism in Escambia County is estimated at roughly $1.1 billion. If the same spending is place in a model that uses the TTSA accounts, however, the output of this spending in Escambia County is valued at $696 million. This is less than the direct spending amount because it reflects the leakages that occur when money is spent within a small region, something the other method does not. Portions of any money spent do not stay within the local economy because large amounts of it leak out as purchases are made from suppliers outside of the region, profits flow to corporations and business owners who do not reside locally, etc.

While this result may seem to downplay the impact of visitors on a community, this is not the case. The direct spending represents actual cash flowing into a region. It is this cash flow that pays wages, leads to investment and supports community growth. It is this cash flow that generates greater tax flows then could be generated from just the resident population. Any dollar that stays within a community that can pay a local wage is important and the tourist dollar is no exception.