Michigan State University Extension
Tourism Educational Materials - 33510409
06/06/02
Impact of Visitor Expenditures on Local Revenues
List of files and visuals associated with this text.
Source: Western Rural Development Center
ID: WREP 145
Year: December 1994
Authors:
Goldman, George
University of California, Berkeley
Nakazawa, Anthony
University of Alaska
Taylor, David
University of Wyoming
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.
-To indicate the value of tourism to a larger region.
-To show the impact on specific local economic sectors,
for instance main street business, households, local
governments.
-To plan new tourism attractions or facilities.
-To determine the impacts of tourism on the economy in
terms of receipts, employment, payroll, and tax revenues.
This is a publication 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.
The Western Rural Development Center offers its programs
and materials equally to all people.
Western Rural Development Center
Oregon State University
Ballard Extension Hall 307
Corvallis, Oregon 97331-3607
(503) 737-3621 FAX (503) 737-1579
Source: Adapted from Tourism USA, Guideline for Tourism
Development, The University of Missouri, Department of
Recreation and Park Administration, University Extension,
revised and expanded 1986, pp 56-57.
Regional Tourism Fact Sheets
WREP 144 Economic Impacts of Visitors to Your Community
http://www.ext.usu.edu/WRDC/resources/tourism/wrep144.html
WREP 145 Impact of Visitor Expenditures on Local Income
http://www.ext.usu.edu/WRDC/resources/tourism/wrep145.html
WREP 146 Estimating Community Visitor Days
http://www.ext.usu.edu/WRDC/resources/tourism/wrep146.html
WREP 147 Cost-Benefit Analysis of Local Tourism Development
http://www.ext.usu.edu/WRDC/resources/tourism/wrep147.html
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.
Measuring visitor expenditures
There are four methods that communities may use to collect
estimates of total dollars spent 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.
Measurement of Impact on Local Revenues
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.
There are two methods to measure the impact of tourist
expenditures on local revenue:
- Adapt coefficients from existing national or regional
studies.
- Develop specific Impact relationships for the community
being studied.
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:
- The estimate will probably fall within the range of 0.3
to 0.5.
- The multiplier will tend to be at the upper end of the
range if the region is urban (more self sufficient) rather
than rural, and if tourists buy products which require
considerable local labor in production (e.g., hotel-motel
expenditures, purchase of local arts and crafts).
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 business, it
may make sense to develop a custom multiplier. Information
required is:
- The pattern and volume of tourist expenditure in the
region.
- The percentage of goods and services produced locally.
- The percentage of local revenue that is spent locally.
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
(Vis. 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.
Figure 1. An Example of the Impact of a $200 Tourist
Expenditure on Local Revenues in Wester City, U.S.A.
(Vis. 1)
STEPS TO CONSTRUCT A CUSTOM INCOME MULTIPLIER
1) Collect data on the volume and pattern of tourist
spending. This information will come from survey data or
regional use figures.
2) Estimate the percentage of sales income which remains in
the area. Interviews with knowledgeable business people in
each sector will provide this estimate.
3)Determine the percentage of tourist expenditures that
directly increase local revenue. This is a "weighted"
average of all sectors where the weights are the percent of
the tourist expenditure in each sector.
4) Estimate the percentage of income that local people
spend in your community.
5) Estimate the percentage of goods and services sold
locally that are produced locally.
6) Multiply the percent estimated in Step 4 by the percent
estimated in Step 5.
7) Subtract the percent calculated in Step 6 from 100
percent and divide the result into 100 percent.
8) Calculate the income multiplier by multiplying the
result obtained in Step 7 by the percent calculated in Step
3.
9) Determine the increase in local income by multiplying
total tourist expenditure by the income multiplier.
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 January 1995
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: Hollis
Hall, 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.
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