The Price Tag of Tourism: Does Tourism Activity Increase the Prices of Goods and Services?

Abstract

The authors use panel data models on a dataset covering EU new member states and candidate countries (Montenegro and Turkey) to investigate the relationship between tourism activity and price level. Along with modelling the overall price level, the authors also separately model the price level of consumer goods, of consumer services and of goods and services associated with tourism consumption (hotels and restaurants, recreation and culture, transportation and food and beverages). Thereby, they control for other factors that commonly influence the price level of an economy, such as income, productivity, trade openness and fiscal dominance. The results suggest that tourism activity increases the overall price level in the economy. This effect is, however, much stronger for prices of consumer services; in particular, for prices of recreation and culture, and hotels and restaurants.