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Although there are many research journals devoted to the topic of tourism, there are relatively few published articles that assess the impact of state-funded tourism promotion.[*]
And of the 25 academic papers and three book chapters reviewed in preparation for this paper, only one stands out for its recent focus on multistate subsidies to promote tourism.[34]
That paper was published in the Journal of Travel Research and authored by John Deskins and Matthew T. Seevers. In it, they also recognized the dearth of literature on the subject of statespecific subsidies for tourism promotion.[†] In their review of the existing literature, they found only two studies that covered more than one American state.
The first, a 1979 paper from the Council of State Governments, “concluded that the size of a state’s travel budget predicts neither traveler expenditures nor tax collections in the state,” according to Deskin and Seevers.[35] The second, published in 1990 and authored by John Hunt found that from 1981 to 1986, “correlations between budgets and tourist expenditures remain low.”[36] Deskin and Seevers do note, however, that Hunt also examined links between tourism budget growth “and market share of tourism expenditures” and found a positive relationship. That is, there was a correlation between larger state spending on tourism and the share of tourismrelated expenditures in a state.[37]
In their paper, Deskins and Seevers investigate the extent to which state-funded tourism promotion impacts economic growth as measured by gross state product and growth in employment. They employ regression analysis using a dataset that runs between 1985 and 2003 and find the impact from increases in state tourism spending “depends on the existing level of tourism expenditures in the state.”[38] The authors conclude that for states with relatively low levels of tourism, state-funded tourism promotion may increase employment and tourism. But, they also find “that effect diminishes as initial levels of tourism expenditures increase.” For states that have relatively high levels of tourism, Deskins and Seevers found that “employment can decline following increased [state-funded tourism promotion] through own-source (state-based) revenues.”[39]
The state of Michigan from 1985 to 2003 spent slightly less than other states on tourism promotion, suggesting that an increase in spending may have a net positive impact on employment growth. Deskin and Seevers, however, failed to find a statistically significant relationship between spending on tourism promotion and state GSP growth.[40] So, even if increasing tourism promotion spending increases private sector employment, the economic gains of this job growth do not appear to boost gross state product — a standard measure of the overall well-being of a state economy.
They write:
Overall, we find that increased tourism promotion spending can increase total private-sector employment in states with low levels of initial tourism expenditures, but this does not carry through to a statistically significant, corresponding relationship between tourism promotion spending and privatesector gross state product growth. Although we do not test the hypothesis explicitly, the findings seems to indicate that the modest employment gains that may be observed are likely low-paying jobs, such that the corresponding income gains are not significant enough to translate into a statistically reliable observed increase in gross state product.[‡]
There are other academic papers that analyze state subsidies for tourism promotion, but most touched more tangentially on the issue, addressing topics such as theoretical modeling, practical issues among free-riders, online marketing, literature reviews in “tourism demand modelling and forecasting,” and other more general tourism-related issues.
A few academic studies did actually attempt to estimate employment or the return on investment from state subsidies to tourism or tourism promotion through advertising. Those, however, involved other countries, such as Italy and Australia, and the results were mixed. In “Is Subsidising Tourism Firms an Effective Use of Public Funds?” the authors looked at 3,800 tourism projects in Italy subsidized by nearly €2 billion in grants and conclude that the results of their analysis “demonstrate, in fact, that in the short term, the policy increases employment in subsidized firms, but the effects on labour productivity are negative, casting some doubts on long-term profitability.”[§]
In a 2009 Journal of Travel Research paper “Measuring the Return from Australian Tourism Marketing Expenditure,” authors Nada Kulendran and Larry Dwyer calculate return per dollar invested for international tourism ads. The dollar results are striking, with ratios as high as 36 to one for New Zealand and as low as seven to one for ads run in the United States.[41] In a similar 2010 study “Measuring the Returns on Hong Kong’s Tourism Marketing Expenditures,” the authors found ratios running from as high as 9.5 to one to as low as 2.5 to one.[42]
These represent positive returns in terms of dollars invested and dollars received, however, both papers show very low returns on new tourist arrivals resulting from the marketing. In their review of these papers Haiyan Song, Larry Dwyer, Gang Li and Zheng Cao write that “the magnitude of the effect of marketing expenditures has been found to be as low as several hundredths.”[**] That is, government marketing expenditures did little to boost new arrivals. The reason there remains a high return on market dollars expended though, is because “on average, every tourist spends up to several thousand (Australia, Hong Kong) dollars.”[43]
[*]Scholar Chris Ryan, writing in a 2005 Tourism Management article, ranked the top three tourism-related journals as Annals of Tourism Research, Tourism Management and Journal of Travel Research. He did this by accessing a database of research from CAB International and recording their “top journals based on frequency of hits in searches.” Chris Ryan, “The Ranking and Rating of Academics and Journals in Tourism Research,” Tourism Management 26 (2005): 658, https://perma.cc/TND8-EE7M.
[†]There are more papers that cover tourism marketing and returns on investment, but those involve other nations, such as the islands of Hong Kong and Australia. See for example, Hanquin Qiu Zhang, Nada Kulendran and Haiyan Song, “Measuring Returns on Hong Kong’s Tourism Marketing Expenditure,” Tourism Economics 16, no. 4 (2010): 853, https://perma.cc/5T3M-QKQU.
[‡]John Deskins and Matthew Seevers, “Are State Expenditures to Promote Tourism Effective,” Journal of Travel Research 50, no. 2 (2011): 166, https://perma.cc/NKJ8-H3V5. One key difference between the Deskins and Seevers study and this one is the Mackinac Center’s use of spatial variables to denote distances to a large body of water, or elevation. Authors Michael Hicks and Michael LaFaive felt compelled to include them because of their possible influence on the decision to visit such locales.
[§]This study is a project-specific one in Europe and perhaps of limited applicability in the case of state-sponsored tourism promotion. We include it here for two reasons. It is an interesting study worthy of review for those interested in the subject, and as a function of thoroughness. Despite being only obliquely related to state tourism promotion in these United States we nonetheless wish to be thorough in our review of existing literature involving government subsidies and tourism. Cristina Bernini and Guido Pellegrini, “Is Subsidising Tourism Firms an Effective Use of Public Funds,” Tourism Management 35 (2013): 156–167, https://perma.cc/FMX6-S6UL.
[**]Haiyan Song et al., “Tourism Economics Research: A Review and Assessment,” Annals of Tourism Research 39, no. 3 (July 2012): 4, https://perma.cc/EE9L-EXB6. Author LaFaive would like to express his gratitude to Zheng “Chris” Cao for a post-doctoral fellow in the School of Hospitality and Tourism Management at University of Surrey in England for his assistance in locating and interpreting the arrival elasticities.
