Expenditure and price elasticities for tourism sub-industries from the Fourier flexible form

Tourism studies holding expenditure and price elasticities constant can produce misleading results. The Fourier flexible form provides estimates of expenditure and price elasticities over the business cycle. Results typically show considerable evidence of increased variation in expenditure and price elasticities over the business cycle and during the decline in overall tourism expenditure from 2001 to 2003 and from 2009 to 2011. Estimated own-price elasticities show that air transportation has the most elastic demand while food and beverage have an inelastic demand. Air transportation, shopping, and accommodation often have expenditure elasticities exceeding unity making them luxury goods during those periods. Results show that food and beverages are necessary goods. Estimated Morishima elasticities find air transportation and other transportation-related commodities are substitutes with the degree of substitution changing over time but are complementary in use with the remaining sub-industries. Marketing strategies from tourism agencies and governments should be flexible and respond to how consumers change expenditure over the business cycle.