How Tourism Affects an Economy

Posted on November 1, 2019

Tourism drives the economies of many countries. There are many advantages and disadvantages of making a place a tourist destination. For instance, local prices for housing and retail inflate; there are shifts in the quality and quantity of goods and services; there are modifications in property and other kinds of taxes; a shift in social and environmental aspects can create various economic conditions; and the flow of money is increased towards businesses, households, and the government.

Inflation of housing and retail prices

One negative consequence of tourism on a local economy is the inflation of housing and retail prices. This is done by the increased demand for land, especially in rural areas. This brings about inflation in real estate prices, which can raise the cost of housing for local residents. In turn, tourism can make areas unlivable for regular citizens. Furthermore, retail prices can jump with an influx of tourism, especially seasonally. This can cause locals to be in danger of not being able to purchase the goods and services they need (Seba, Jaime).

Shifts in the quality and quantity of goods and services

Tourism can change the items that are available and how they are produced. More demand often requires a transformation in the way things are made and how many objects are needed to accommodate customers. According to professor Daniel J. Stynes, “…tourism may lead to a wider array of goods and services available in an area (of either higher or lower quality than without tourism)” (Economic Impacts of Tourism). This can have both negative and positive impacts on a local economy. It could produce more business and profit but also could be detrimental to the quality of the items people purchase in the area.

Changes in taxes

Shifts in property and other kinds of taxes is a normal occurrence in a place with tourism. According to professor Daniel J. Stynes, “…taxes to cover the cost of local services may be higher or lower in the presence of tourism activity. In some cases, taxes collected directly or indirectly from tourists may yield reduced local taxes for schools, roads, etc. In other cases, locals may be taxed more heavily to cover the added infrastructure and service costs” (Economic Impacts of Tourism). So, there are many chances for tax hikes and the lowering of tax rates with the influx of tourists in an area.

Economic conditions created by social and environmental factors

The power (or the lack of it) of a local economy can be influenced by the social and environmental conditions created by tourism. Professor Stynes J. Daniel gives examples, such as that, “…traffic congestion will increase costs of moving around for both households and businesses. Improved amenities that attract tourists may also encourage retirees or other kinds of businesses to locate in the area” (Economic Impacts of Tourism). In addition, when some towns or cities become hotspots for tourists, sometimes locals find that their hometown changes too much in terms of its culture. In turn, they desire to move somewhere else that fits their idea of what an ideal living place would be. This shift in culture can change the economy if enough residents decide to move away.

Flow of money

There is a spreading of money that is created through tourism. This is sometimes called the Tourism Multiplier Effect. As stated by the Barcelona Fields Studies Centre, “Money spent in a hotel helps to create jobs directly in the hotel, but it also creates jobs indirectly elsewhere in the economy. The hotel, for example, has to buy food from local farmers, who may spend some of this money on fertiliser or clothes. The demand for local products increases as tourists often buy souvenirs, which increases secondary employment” (“Tourism Multiplier Effect”). This chain continues through imports from different countries. Unfortunately, a large percentage of this money leaves the local economy through importation, workers from various countries, and outsourcing.

As you can see, there are many pluses and minuses when considering tourism’s connection with an economy. Namely: the prices for housing and retail can inflate; changes in the quality and quantity of goods and services; adjustments in various taxes; a modification in economic conditions due to social and environmental factors; and the rippling effect of money put into tourism ventures that ends with capital sent overseas.

Works Cited
Seba, Jaime. Tourism and Hospitality: Issues and Developments. Apple Academic Press, 2012.
Stynes J., Daniel. Economic Impacts of Tourism.
“Tourism Multiplier Effect.” Barcelona Field Studies Centre,

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