Tourism and business cycles

This contribution highlights that accounting for the fact that tourism income elasticities do not remain stable is crucial for analyzing business cycles and formulating business strategies. Because demand forecasting is a necessity for tourism management to define efficient business strategies we point out that approaches with constant elasticity assumptions might lead to substantial forecasting failures. This is especially true for periods characterized by major economic fluctuations and changes in the macro-economic framework conditions. Therefore, in the course of distinct business cycles, we have to take into account that different income effects are to be expected. We emphasize coherently that the integration of psychological factors such as loss aversion and other quality of life aspects as well as economic factors like liquidity constraints, reluctant lending behavior of banks, precautionary saving, changing household behavior and financial innovations delivers an effective framework to explain asymmetric behavior in tourism demand.