This paper estimates the elasticities of Italy's foreign tourism demand to relative prices, nominal and real exchange rates. By separating total tourism expenditure into the number of arrivals and per-capita expenditure, the effects of the explanatory variables can be divided into an extensive and an intensive margin. This disaggregation helps to clarify the reasons behind the mixed evidence found in the literature and offers a richer interpretation of elasticities.
The elasticities of tourism expenditure to relative prices and to nominal and real exchange rates are negative and range from -0.5 to -0.7, in line with previous results found in the literature. The effect on expenditure is channelled mainly via the extensive margin (i.e. the number of arrivals). Southern Italy shows higher price elasticities than the rest of the country, signalling a higher exposure to the competitive pressures from other Mediterranean destinations.
