An initial investigation into the impact of tourism on local budgets: acomparative analysis of Spanish municipalities

Abstract

The Spanish Federation of Municipalities has, particularly since 2008, been vocal about a "chronic deficit" situation caused by high public expenditures in tourist areas. Within this context, new strategies to increase revenues have been proposed, including the introduction of tourist taxes. This paper contributes to this debate by determining if tourism activity actually has a negative impact on local finances in Spain. To that end, a comparative analysis of budget structures between tourism-intensive and non-tourism-intensive municipalities is undertaken using data from more than 3200 local corporations for the years 2001-2010. The determinants of expenditures, revenues and deficit per capita are identified using a linear regression. The results indicate a direct relationship between tourism intensity and local deficits only in the smallest and largest municipalities, while a beneficial effect is actually seen in the remainder of the sample. In view of this evidence, we recommend revising the existing regulations to allow for municipalities below 20,000 residents to be officially recognized as "tourist municipalities" so that they can benefit from that status. In addition, the option of introducing new tourist taxes should be more restricted in scope and depend upon further evidence of possible cost inefficiency in the affected municipalities.