Modelling Tourism and Travel using Tourism Satellite Accounts and Tourism Policy and Forecasting Models

Adam Blake, Ramesh Durbarry, M. Thea Sinclair and Guntur Sugiyarto1

ABSTRACT This paper shows how research with Tourism Satellite Accounts (TSAs) can be complemented and extended by the use of Tourism Policy and Forecasting (TPF) models. These models integrate information from TSAs into a Computable General Equilibrium (CGE) modelling framework to provide a leading edge technique for modelling the economic impact of tourism and travel. In contrast to their predecessor, input-output models, the Nottingham TPF models not only include the totality of tourism and travel’s economic impact but also are much more flexible, facilitating their use in other areas, such as tourism planning, policy analysis and forecasting. As such, they are a very powerful tool for policymakers in governments, as well as for business people who are interested in the implications of policy or who wish to plan for the future. The paper examines TPF modelling for tourism organisations, governments and businesses in the context of the extensive work on TSAs that has been undertaken to date. TPF models of tourism are then compared with input-output models of tourism’s economic impact. An assessment of the differences between TSAs, input-output modelling and TPF models of tourism and travel’s economic impact is provided. As TPF models of tourism and travel require specific data on tourism expenditures and on the structure of production in tourism characteristic sectors, the use of TSAs in TPF modelling presents a significant improvement in the ability to model tourism and travel. A summary TPF model for the USA is estimated and three illustrative cases are examined in this paper, namely a rise in foreign tourist expenditure, removal of indirect taxation, and an increase in air transport productivity. In the first case, the indirect effects of an inputoutput model are also presented for ‘cautious comparison’. In each case the results show increases in GDP for most sectors in the economy, while a minority of sectors experience some crowding-out.

Keywords: tourism, computable general equilibrium, tourism satellite accounts. JEL classification: C68

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The authors are respectively Research Fellow, Research Fellow, Professor and Research Officer at the Christel DeHaan Tourism and Travel Research Institute, Nottingham University Business School, Jubilee Campus, Nottingham NG8 1BB, UK. http://www.nottingham.ac.uk/ttri

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1. Introduction
This paper shows the way in which current research with Tourism Satellite Accounts (TSAs) can be complemented and extended by the use of the Nottingham Tourism Policy and Forecasting (TPF) model for analysing tourism and travel. The TPF model consists of an innovative integration of tourism and travel analysis within a computable general equilibrium (CGE) modelling framework, to assist the formation of government policies relating to tourism and travel. These models are formal economic models that extend, rather than replace, tourism satellite accounts (TSAs). Indeed, the increasing implementation of TSAs is a stimulus to the use of TPF models because they provide data that is ideal for implementing a TPF model. These models allow the full potential of the detailed data contained within TSAs to be realised and facilitate: • • • the assessment of tourism’s overall economic impact, the analysis of tourism policy, tourism forecasting, predicting long-term trends in tourist numbers and expenditures.

The paper is structured as follows: Section 2 provides an overview of the development of TPF models from the TSA perspective. Section 3 discusses the relevance of TPF models for measuring the economic impact of tourism. Sections 4 and 5 provide introductions to policy analysis and forecasting using the models. Section 6 discusses how TSA data are used in TPF models, and section 7 gives illustrative results from a TPF model of the USA. Section 8 provides conclusions.

2. Tourism Satellite Accounts and TPF Models
Tourism satellite accounts are being formulated by countries across the world, in order to provide accurate measures of the size of tourism sectors, the nature of demand for tourism, the nature of supply in tourism sectors, and the direct contribution of tourism to GDP and employment. This makes an invaluable contribution to our knowledge of the tourism sector. When measuring the economic impact of tourism, input-output (IO) models have often been used in the past. While these models successfully capture some of the 2

CGE models allow prices to vary and resources to be reallocated between production sectors. macroeconomic modelling. the World Trade Organisation and the OECD as well as in academia. they do not capture all of the economic impact. because other forms of modelling can only trace the effects of specific initial stimuli. CGE models are not deterministic in the same way that other simulation approaches are. ranging from changes in taxes and subsidies. economic development. 1997. CGE models are formulated by specifying how economic agents react to changes in the economy. 2000). production sectors and economic agents. and can be literally anything that can occur in an economic framework. any other form of numerical simulation. Whereas the other modelling techniques rely on an initial stimulus which is then traced through the economic system in a systematic and deterministic manner. This gives CGE models a significant advantage in flexibility over other forms of modelling. Computable general equilibrium modelling is one of the most flexible and innovative economic techniques developed in recent decades. 1991. Zhou et al. CRE. 2000. population growth. and do so in a one-way deterministic system. 1994. It has been used in the fields of international trade. More recently. 1991. Tourism impact models have traditionally relied on input-output (IO) modelling (see Archer. The initial stimulus affects markets. A CGE model is then solved simultaneously for all markets. 1995. indeed.economic impact of tourism. Fletcher and Archer. 1983). partial equilibrium modelling or. leading to estimates of the economic impact of tourism that are not only unreliable but heavily biased. to technological change. CGE models are formulated in a way that is radically different from input-output modelling. Blake. Computable general equilibrium (CGE) models have their historical origins in input-output methodology. shifts in demand and regulatory changes. It has been used extensively by such international organisations as the World Bank. The use of CGE models uses the latest methodology and gives more accurate predictions than techniques such as IO modelling. 1973. production sectors and 3 . the initial stimulus can originate anywhere in the economy. agricultural economics and environmental economics. Pye and Lin. In a CGE model. there have been initial applications of CGE models in the tourism field (see Adams and Parmenter. In particular. but were developed to overcome the many shortcomings of IO models. Tourism Policy and Forecasting (TPF) models build upon this framework by including tourism data from TSAs to provide a consistent means of modelling tourism in the entire economy.

4 . sector and household has its own set of economic rules that determine how it reacts to external changes. services and factors of production). and for a review of CGE models in international trade see Franςois et al. as illustrated in Figure 1. that may be very complex. These changes do not work in a one-way direction. a CGE model can then model a variety of possible scenarios. the CGE models include not only the indirect effects but also the induced effects. Franςois and Reinhart (1997) and Ginsburgh and Keyzer (1997).economic agents who react to the stimulus and provide further changes to the economy. IO models rely on an input-output table for data. For reviews of CGE models of development policy see de Melo (1988) and Devarajan et al. (1994). the government. the price of the good or service will increase until the market clears. Hence. see Shoven and Whalley (1992). the output of the sector will increase. investment and exports. markets for goods and services are market clearing. and trace the intermediate demands for goods and services that are needed to satisfy final demands by consumers. they calculate the indirect effects of final demand. which are similar to Keynesian multipliers. CGE models by their very nature allow interactions between markets. Eventually these demand and supply changes will (due to the demand-supply correcting behaviour of prices in markets) increase the price of factors of production and decrease the price of the output good. By setting up the economic conditions whereby each market. If the price of the good that a production sector produces increases. and between sectors. Typically. (1996). Each market. In doing so. so effects can feed back to where the stimulus started. The earnings of income (by private consumers and the government) can also be included to calculate the induced effects. (1982). Consequently its use of factors of production will increase and the supply of the good will increase. the construction of a CGE model is a process of setting up a series of markets (for goods. production sectors and demand groups (households). sector and household reacts to changes in the economy. until it is no longer profitable to increase output any further. CGE models include other effects through factor markets and foreign currency. Broadly speaking. Greenaway et al. In other forms of numerical simulation. so that if demand exceeds supply. models are set up whereby the simulation follows a direct causal relationship from one effect to the next.

with data on tourism demand and the supply of tourism industries. and frameworks for modelling tourism and travel. the government. firms and any other economic agents that are modelled. as shown in Figure 2: • • • A TPF model includes flexible prices and wages.Figure 1: IO Models and CGE Models Goods Markets Earnings of Income Factor Markets Foreign Exchange Markets Indirect Effects Induced Effects All Effects IO Models CGE Models Tourism Policy and Forecasting models extend the CGE framework to incorporate tourism and travel. Four basic characteristics differentiate Nottingham TPF models from IO models of tourism and travel. such as labour and capital. and foreign exchange markets to be modelled. Income-expenditure consistency must be maintained for all private households. This enables factors of production. Figure 2: Characteristics of IO and TPF Models Flexible Prices and Wages Income-Expenditure Consistency IO Model Behavioural Assumptions Production Assumptions TPF Model 5 . Consumers’ responses to changes in prices and income levels are taken into account by behavioural assumptions.

• Production functions determine how much is produced for any given level of factor employment. • Behavioural relationships state how economic agents react to changing prices and income levels. the government. Various forms of market competition can be included. and Extensions to the model scope Market Competition Labour Markets Income Distribution Extensions to the model scope Inter-regional Effects The Environment Foreign Trade Components of the model structure Dynamics International Effects 6 . Figure 3: Components of TPF models. and can be expanded by extending the scope of the model to suit the circumstances of the tourist origin/destination country or region. factor of production and for foreign exchange. the TPF models usually contain certain core components of the model structure. service. As demonstrated in figure 3. is taken into account by production assumptions. capital usage and intermediate input usage are required to satisfy a given level of output for a set of prices. these determine what levels of labour employment. All earnings must be accounted for through expenditure or savings. These then determine consumers’ demand levels for each good and service. Model structure components include: • Market competition. These conditions apply to all private households. With assumptions regarding market structure. A TPF model contains four types of equation: • • Equilibrium conditions for each market ensure that supply is equal to demand for each good. One of the strengths of the TPF models is their flexibility. as prices and wages change. from perfect competition to monopoly.• Substitution between intermediate inputs and factors of production. Income-expenditure identities ensure that the economic model is a closed system. firms and any other economic agents that are modelled.

If. in addition to measurement of size. with the possibility of allowing for unemployment. Figure 4 shows the relationship between the measurement of the size of tourism with TSAs and the estimation of tourism’s economic impact with TPF models. Tourism Impact Modelling TSAs represent a major step forward in the measurement of the economic size of tourism. however. The environment can be incorporated to show the effects of tourism and tourism policy on environmental issues. but do not assess the total impact of tourism. If an aircraft is owned by an airline. on the surface.• • • Labour markets can be modelled in various forms. The distributional effects of tourism or tourism policies could then be examined. agriculture or manufacturing that are usually measured from the supplyside. Foreign trade can be treated in several different ways. The direct impact of tourism is. regions or on income distribution. 7 . It can also show what impact tourism has on different sectors. such as: • • • • Income distribution can be modelled by incorporating many household groups. In addition. One problem with any attempt to measure the size of a sector such as tourism is that it is usually measured from the demand-side and it is difficult to compare results with sectors such as mining. but falls into definitional problems. a proportion (corresponding to the proportion of airline services consumed by tourists) of the aircraft will be included in the direct measurement of tourism. with economic agents’ expectations about future events incorporated into their decisionmaking processes. to enable the modelling of small and large countries. International effects can show how tourism’s effects are spread between countries. Inter-regional effects could be modelled by modelling distinct regions within a country. Dynamics can be incorporated to show how the economy moves through time. extensions to the model scope can be made. 3. Estimating the impact of tourism has the advantage of showing the desirability of tourism. depending on the specification of the model. for example. the most comparable with supply-side sectors.

IO models include some intermediate purchases (such as food and fuel. the IO models go some way beyond measuring the size of the sector to measuring its economic impact. various countries have included indirect effects through input-output (IO) models as an alternative in their TSAs. In an attempt to rectify this situation. In fact. While this solves problems relating to definitions of intermediates. IO models do not. and the corresponding returns to investment will not be included in tourism value added. Figure 4: TSAs.the airline rents the aircraft from another company. it goes beyond the measurement of the size of tourism in an accounting sense and loses direct comparability with supply-side sectors. IO models and TPF models Measurement of tourism’s economic size Estimation of tourism’s economic impact Tourism Satellite Accounts IO Tourism Models TPF Models 8 . however. the value of the rental service will be attributed as an intermediate input into tourism. In short. the TPF results are more comprehensive and IO results more misleading because they incorporate only some of the impact of tourism. These models make various assumptions that evidently exclude some of the economic effects that a sector has. Therefore the measurement of indirect impacts through IO models gives only a partial picture of the full impact of tourism. for example) that should clearly be thought of as intermediate purchases and not as being within the tourism sector itself. measure the full impact of tourism.

or other policy instruments such as investment incentives and planning regulations.e. i. or the effects that other policies have on tourism. For example. Examine purely taxation issues.4. as shown in Figure 5. The TPF models offer the ability to perform “what-if” simulations. such as trade liberalisation or general taxation changes. • • • Provide a theoretical viewpoint or an applied quantitative estimate. whether tourism is taxed at too low or too high rates relative to the rest of the economy. Quantitative estimates of the effects of other policies on tourism. • Examine the economic effects of existing policies on tourism or of proposed alternatives. Policy analysis is an important way in which the potential of TPF models can be further demonstrated. Tourism Policy Analysis The TPF models can be readily utilised to provide other forms of economic analysis. they can show the net effective taxation of tourism that exists or provide a quantitative assessment of policy alternatives. Examine the effects of tourism policy. Cases of particular relevance include: • • • Examination of the current levels of tourism taxation. Figure 5: Tourism Policy Analysis with TPF Models Tourism Policy Analysis Existing or Proposed Policies Theoretical or Applied Viewpoint Taxation or other Policies Tourism or nonTourism 9 . Quantitative estimates of tourism policy alternatives. which can. such as planned tax changes or tourism development plans. These examples demonstrate that the scope for tourism policy analysis with the TPF models is large. for example.

forecasting their total effect requires a TPF model. labour growth through population growth. Tourism growth Figure 6: Tourism Forecasting with TPF Models Demand Side Tourism Forecasting Supply Side Relative Prices Income Growth Production Costs Factor Accumulation Technological Change Policy Changes 10 . How this affects tourism depends very much on the skill and education levels in tourism characteristic sectors. Differential growth rates between tourist source countries will affect international tourism growth rates in different destination markets. Relative prices balance the demand and supply side factors to achieve equilibrium in each market. Policy changes. Continuing increases in overall skill and education levels will. lead to high growth rates in sectors that use highly skilled and highly educated labour. through technical progress. including capital accumulation through investment. and changes to the skills of labour through education and training. Tourism Forecasting TPF models can be used to forecast future trends in the tourism industry.5. and on the intermediate relationships between tourism characteristic sectors and the rest of the economy. Such forecasting models show how changes in the world economy will feed through to tourism. which may be foreseeable. as shown in Figure 6. Three main causes of change are highlighted here: • Factor accumulation. As each factor may be changing at different rates in different sectors and in different countries. • • Technological change. These factors influence both income growth on the demand side and production costs on the supply side. for example.

Tourism Demand by Type of Visitor. as well as the short-term impact of macroeconomic changes such as currency market crises and natural disasters. 2. This table provides a “make” matrix showing the output of each commodity in each industry and a breakdown of costs by industry into three categories: intermediate inputs. 6. and (ii) a breakdown of demand into categories – intermediate. broken down into the following categories: business. 2000) specifies 18 industries and 23 commodities. imports government sales. Using the tourism industry ratio. 11 .will. Supply and Consumption of Tourism and All Other Commodities. This table provides expenditures on each category by visitors. government. this table derives tourism employment and compensation of employees by industry. Tourism Employment and Compensation of Employees. TSA used here (DoC. This table shows (i) a breakdown of total supply of each commodity into various categories – such as domestic production. compensation of employees. The U. investment. 4. Production Account of Tourism Industries and All Other Industries. resident and non-resident. in general. 5. this table provides details of how much GDP is generated by tourism in each industry. and will depend on the relative prices for tourism and other goods and services. Using a tourism industry ratio derived as tourism output divided by industry output. The tables that it provides are: 1. exports and government expenditures. personal consumption. Tourism GDP of Tourism Industries and Other Industries. be highly responsive to increases in income levels in source countries. 3. The TPF models provide the opportunity to assess the potential long-term growth of tourism in response to changes in the economy (such as population growth and changing education levels) that are highly predictable. TSAs and a TPF Model of the USA Tourism satellite accounts provide detailed data on tourism activities that are not otherwise available in national accounts because national accounts provide data classified according to production activities and commodities. and tourism spans many of these standard classifications. and other value added.S.

where published input-output tables adequately classify tourism and travel sectors. 7.S. as markets adjust to reallocate resources. (ii) input-output estimates. Where published input-output tables do not adequately define tourism industries. we simulate a 10% increase in foreign tourist expenditures. data from the TSAs on the structure of supply may also be necessary. and other exports are crowded out. only the demand data is required from TSAs. to the published TSA. The data provided by such tables are invaluable for economists when modelling tourism.The ability to define different categories of tourism expenditure and trace the effects of this expenditure through the economy is an important and substantial step in tourism research. This 10% increase is $9. in terms of (i) direct expenditure impact.8bn. These comparative figures illustrate that just over half of the expenditure is captured as an increase in welfare.6bn. Illustrative Results From the US TPF Model We present illustrative results here of an aggregated version of the Tourism Policy and Forecasting Model for the USA. and (iii) general equilibrium estimates with the TPF model. in addition to other sources of data. just under 0. Table 1 shows how the impact of this expenditure is captured by GDP. as measured by equivalent variation rises by $5. Tourism Impact – The Effect of a 10% Increase in Foreign Tourist Expenditures In order to measure the impact of foreign tourism. The U. given the necessary matching of TSA data. It has 18 sectors and commodities that correspond as closely as possible. TPF model combines the tourism demand data (DoC 2000) for 1997 with the published 1997 benchmark input-output table containing data for 494 sectors and 37 categories of final demand. Therefore.6bn extra expenditures is 12 . imports increase. IO data and data from other sources.1% of GDP. Economic welfare. The data requirements of tourism policy and forecasting models are that input-output tables and tourism demand data are available for a consistent classification of industries and commodities. While the direct impact of the $9.

269 6.936 1.859 29 138 259 486 90 71 36 526 94 1. The main points are: • Some tourism and travel sectors have significantly higher increases in GDP in the TPF model than the IO model suggests. This indicates that: • A large proportion of the expenditures leads directly to purchases of intermediate inputs.4bn. The IO estimate has no crowding-out.$4. and there is very little import leakage.785 9. theatre. • The TPF estimate includes significant levels of crowding-out and resource reallocation. hence the low figure for the direct expenditure impact.293 34 45 57 542 45 47 22 35 712 10 Input-Output Model 1.365 General Equilibrium TPF Model 1.037 Hotels and lodging places Eating and drinking places Rail transport Bus and other local transport Air transport Water transport Auto and truck rental Arrangement of passenger transportation Recreation and entertainment Participant sports Movie. the initial stimulus of foreign tourism expenditures is reinforced by domestic expenditures as firms benefiting from the initial expenditures increase there own expenditures on business tourism.540 13 . Here. and private households which have increases in income spend more on domestic tourism (induced Table 1: Comparison of Estimates of a 10% Increase in Foreign Tourist Expenditures: Increase in GDP (US$million) Direct Expenditure Impact 961 680 12 44 1.245 87 207 -2. automotive repair and highway tolls Wholesale trade margins and transportation costs All other commodities Total 4.0bn.5bn and the input-output estimate is $9.104 611 33 51 1. ballet and musical events Sport events Retail margins Gasoline and oil Other non-durable commodities Parking. Table 1 also shows that the total effect that the increase in foreign tourism expenditures has on individual sectors is quite different for the different models. the TPF estimate is $6.327 42 24 195 426 63 86 39 151 84 938 23 382 3.033 11 100 1. • Almost all of the expenditure leads to increased GDP in the input-output estimate.

Indirect (intermediate demands. • Others tourism and travel sectors. such as water and rail transport. but are outweighed by resource allocation effects. ‘all other commodities’) have a decline in sector GDP that the IO model completely misses. These reallocation effects outweigh the induced effects that these sectors experience from higher incomes. • Non-tourism industries (here. have a lower GDP increase than the IO model suggests. as captured through the IO model) and induced effects are positive. Here. because it does not include price crowding-out effects and resource allocation. Resources are reallocated to other sectors that are able to pay higher wages. there is no direct stimulus from the foreign tourism expenditures. Policy Analysis – The General Equilibrium Effects of Indirect Taxation 14 . These are sectors that sell products that are relatively small proportions of the foreign tourist’s expenditures.effects).

9 -505.5 -2.2 -3.4 -1.2 -6.7 20. are given in the third column.0 0.5 25.6 1.9 -128.6 -4.0 -203.5 3. Changes to the total GDP contribution by sector.1 Hotels and lodging places Eating and drinking places Rail transport Bus and other local transport Air transport Water transport Auto and truck rental Arrangement of passenger transportation Recreation and entertainment Participant sports Movie. and shows how distortions that indirect taxes introduce lead to economic loses. Changes to the GDP contribution of taxation are given in the second column.7 2. it is an important indicator as to how economically efficient taxes are in each sector. and in total. automotive repair and highway tolls Wholesale trade margins and transportation costs All other commodities Total 15 .1 2. This improvement to GDP comes about through an increase in the GDP contribution of labour and capital ($1. which is 2. ballet and musical events Sport events Retail margins Gasoline and oil Other non-durable commodities Parking.6 0.3 1.5 1.1 2. Table 2 reports the result of a simulation whereby all indirect taxes are removed and replaced with non-distorting direct taxes.4 0.9 528.2 -1.8 3.8 Taxation US$bn -7.9 -20.4 Total GDP By Sector US$bn 2.0 1.4 -0.4 1.1 -1.9 1.7 -99.5 491.3 2. As such.7 1.3 -4.7 1.0 0.9 1. The changes to the GDP contribution of labour and capital are given in the first column.4bn.0 -0.4 % of 1997 GDP 1.9 2.6 1. theatre.4 2.7 9.2 9.5 2.9 3. This therefore is the measure of the total distortionary impact of the indirect taxation system. Overall. Removing all indirect taxes and replacing them with non-distorting direct taxes leads to an improvement to GDP of $528.1 1.3 1.1 2.033.5 695.4 7.2 110.0 5.3 27.1 -0.3 -17.033.8bn) outweighing the loss in indirect taxation revenue ($Table 2: The GDP Effects of Removing Indirect Taxation Labour and Capital US$bn 10. and in the fourth column as a percentage of the 1997 GDP contribution.4 119.8 3.The overall effect of indirect taxation exposes the levels of effective protection that the structure of taxation gives to industries.5 6.8 0.7 1.8 -16.8 -1. The results therefore remove arguments about the motives for taxation because the total level of taxation is maintained.1 -4.6 2.3 0.7 2.8 2.1% of GDP in 1997.2 -1.3 5.2 1.5 -0.0 2.

8 1997 Tax Revenue US$bn 7. tourism and travel sectors have a lower GDP increase than the national average of 2.7 99.9 20.2 21.01 0.2 3.9 0.2 4.01 1.4bn).12 0.1%.1 5.9 1.0 0.75 0. since tourism sectors do not expand by the national average when indirect taxation is removed.7 114. ballet and musical events Sport events Retail margins Gasoline and oil Other non-durable commodities Parking.31 1.0 203.06 0.4 0.3 2.00 0.4 8.06 0.5 2. the indirect tax in each sector is removed independently.1 3. With some exceptions. recreation and entertainment and retail margins.9 128.7 2.4 1.3 4.9 0.6 4.16 0.92 16 .4 188. such as water transport.04 0. theatre.1 126.01 1. Taxes in a range of sectors such as auto and truck rental.2 6.7 4. This implies.9 4. Some sectors.06 0.5 4.1 1.4 0.1 7. impose distortions on the economy that lead to a higher welfare loss than the tax revenue that they raise.4 5.04 0.04 1.1 3.01 0. Table 3 shows results from a quite different set of simulations.06 1.76 0.90 1. air transport and hotels and lodging places.68 0.8 16.2 1.85 2.3 12. Sectors where taxation imposes the highest distortions relative to revenue have the highest values in the last column in table 3.0 6.5 4.2 2. automotive repair and highway tolls Wholesale trade margins and transportation costs All other commodities 7.9 Welfare Effect of Removing Tax US$bn 6.02 0. Non-tourism sectors (‘all other commodities’ is a much larger sector than ‘gasoline and oil’ or the wholesale sector) have a larger GDP effect than the national average.0 15.3 3. have Table 3: The Welfare Effects of Removing Taxation in Individual Sectors 1997 Tax Rate % of output Hotels and lodging places Eating and drinking places Rail transport Bus and other local transport Air transport Water transport Auto and truck rental Arrangement of passenger transportation Recreation and entertainment Participant sports Movie.1 0.99 0. that the tourism sectors have levels of effective taxation that are higher than the national average.98 1.5 0.9 0.2 5.8 0.88 0.00 0.24 0.1 4.5 0.48 0. whenever a tax is removed it is replaced with non-distortionary direct taxation.09 0.04 0.3 1.07 0.08 1.78 0.94 0. Here.6 3.3 16.89 0.1 % of 1997 % of 1997 GDP tax revenue 0. As for the simulation that is reported in table 2. The results of these 17 separate simulations are summarised as the welfare effect of removing the individual taxes.81 1.505.

0 1.1 0.0 1. Sectors that have high distortions can effectively pass some of these distortions to related sectors.0 20. low levels of supply and demand response to prices) tend to have lower distortionary impacts from taxation.5 0.0 0.1 0.2 14.5 15.1 0.3 0.3 0.0 0.0 0.0 Total GDP By Sector US$bn -0.3 0.3 0.1 0.1 0.much lower distortionary impact when compared to the tax revenue.2 1. Sectors with inelastic supply and demand (i.3 0.1 -0.0 -0. In a general equilibrium framework.0 0.1 0.7 0.0 -0.8 -0.0 1.4 0. in other words to the elasticities of supply and demand.8 -0.8 0.0 0.e.1 0.6 % of 1997 GDP by sector -0. • The distortionary impacts are related to other sectors through intermediate demands.2 -0.0 -0.0 -0.1 0.1 17 . and substitution in final demand.7 0.1 0. automotive repair and highway tolls Wholesale trade margins and transportation costs All other commodities TOTAL -0.3 0. so that higher tax rates lead to a higher distortion/revenue ratio.6 Taxation US$bn -0.1 0.6 0.0 0.1 -0. the responsiveness of supply and demand depends on many factors.1 -0.1 0. such as who purchases the product (a product mainly purchased by firms will Table 4: The GDP Effects of a 10% Increase in Air Transport Productivity Labour and Capital US$bn Hotels and lodging places Eating and drinking places Rail transport Bus and other local transport Air transport Water transport Auto and truck rental Arrangement of passenger transportation Recreation and entertainment Participant sports Movie.3 0.4 1.4 0.8 0.0 0.3 0.1 0. • The distortionary impacts are related to how readily supply and demand change in response to price changes.0 0.5 -0.0 0.0 0. including: • The distortionary impact of tax rates are often more than proportional to the tax revenue raised.1 0.3 0.0 -0.0 1.1 0.0 0.0 0. ballet and musical events Sport events Retail margins Gasoline and oil Other non-durable commodities Parking. There are many reasons why sectors have different distortionary impacts.1 0.0 0.1 0.2 2.9 -0.0 0. theatre.1 0.6 19.

18 . ‘What-if’ scenarios can simulate the effects of anything from productivity growth. changes to competition (anti-trust) legislation and environmental controls. Conclusions The Nottingham Tourism. enabling the complex interactions in the economy that result from policy actions to be traced through a general equilibrium framework and assessed. TPF models also provide an important tool for policy analysis.often have a lower demand elasticity than one purchased by households) and the structure of production (an industry that relies heavily on one type of input will tend to have a lower supply elasticity than other industries). industries that use air transport such as ‘all other commodities’ also increasing. They are an innovative and significant means of combining tourism satellite accounts. the IO models overestimate the total GDP effect. Policy and Forecasting models apply tourism within a general equilibrium setting. They expand on the TSA’s measurement of tourism’s economic size to provide estimates of tourism’s economic impact. The impact of tourism when including induced income effects and resource reallocation effects is dramatically different to the standard input-output results. TPF models can also be used as a basis for forecasting the levels and expenditures of tourists. ‘What-if’ Scenarios – The Effects of Improved Productivity in the Air Transport Sector Table 4 shows results that demonstrate the TPF model’s flexibility for analysing other types of issues. which compete with air transport 8. The results presented here for the USA Tourism. In particular. Most sectors that have a reduced GDP contribution are other transport industries. The $20. including many effects that are not captured in input-output models. The total general equilibrium effects of such diverse issues can be a complex product of many different changes. input-output tables and economic modelling. we show the results of a productivity improvement in air transport. Here. The ability to have quantitative estimates of the effects of policy is of vital importance to policy makers. taking relatively stable and predictable long-term trends in tourism source and destination countries to provide a method of robust long-term forecasting. Policy and Forecasting model provide an example of the TPF model’s capabilities. with air transport itself increasing in size to account for an extra $2bn in GDP.6bn increase in GDP that results is spread across industries.

include Canada and Mexico. to assess the effects that a tax on a tourism sector in the U.. This would incorporate cross-border effects. TSA as closely as possible. Otherwise. has on the economies of Canada and Mexico. While the sector classification for this model is small to match the U. for which computable general equilibrium modelling has long been used. the model can be extended in various directions: tourism demand data on domestic tourism by state would enable the TPF model to include state effects.S. those where welfare distortions are disproportionately high relative to tax revenues) are auto and truck rental.S. a full 494-sector model is also in operation. TPF model. household distributions and different types of labour as well as incorporating more than one country. As well as these extensions the U. income category. or other classification. recreation and entertainment. the model can be expanded to include different skill categories of labour and different households groups according to geographical location. This implies that the most urgent sectors for tax reductions (i. automotive repair and highway tolls.S. This would be able to show how these different household groups are affected by both an expansion in tourism and by policies. for example. For the U. The results of the policy analysis using the TPF model are that most tourism sectors are effectively taxed at higher than the national average level. eating and drinking.S. The USA TPF model is intended to give an indication of the potential applications that TPF modelling has.e. and these can also incorporate regional differences. participant sports. retail. and parking. Other possible ways of expanding this model are to incorporate similar data from other countries: a model of North America would. The underlying methodology of TPF models is well suited to developing countries. In sectors such as hotels and transport sectors indirect taxation imposes lower welfare losses on the economy than in other sectors. The results show that increases in GDP are spread across the economy in sectors that use air transport. We also report the results of a ‘what-if’ scenario that shows the effect of improved productivity in the air transport sector. Competing transport sectors may contract as a result.underestimate the total effect on tourism sectors and completely miss the negative effects on non-tourism sectors. 19 . it is of course possible to build similar models for any country where a TSA and input-output table exist.

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