Income and the substitution pattern between domestic and international tourism demand

Abstract

This article analyses the role of income in the decision of participating in the tourism demand within 1 year. The tourists who are participating can travel to domestic destinations only, abroad destinations only or to both of them. Such a substitution pattern is modelled using a bivariate probit model. The analysis is carried out to the regional level using a survey conducted in 15 European (EU-15) countries. In addition to the traditional socioeconomic variables, the analysis adds new variables to the outbound tourism demand modelling, such as the attributes of the place of residence. The results show that tourism demand is income elastic. However, there are marked differences in the income elasticities of the probabilities of travelling domestically or abroad. Above certain income threshold, the substitution pattern between destinations takes part. The probability of travelling domestically only remains constant, whereas the probability of travelling abroad keeps growing. Additionally, the article proves that income elasticities vary significantly and nonlinearly with income.