A Double-Hurdle Approach to Modelling Household Spending on Recreation and Culture in Hungary

Authors: Adedoyin, F.

Start date: 30 May 2019

This study examines the relationship between socio-demographic and economic variables and household RC consumption decisions in Hungary, given that on average household spend up to €160.47 on recreation and culture (RC) but paid €121.13 (75%) of this amount as taxes. We find that households with two or more adults are less likely to participate in RC, but for those who did, their expenditure on RC did not differ significantly from households with more than two adults and dependent children. Income elasticity for RC is 0.04 and positive, hence, it can be classified as a normal good. Furthermore, tax on RC has a strong positive effect on household expenditure, and as the empirical results show, people spend more on RC irrespective of the tax paid on tourism services. This, therefore,​ confirms our hypothesis that household expenditure responds to changes in tourism tax and the degree of responsiveness is relevant for policy analysis. Also, in contrast to our expectation, tax elasticity is positive and statistically significant. This is also in variance with studies adopting aggregate data to investigate the impact of tourism tax on tourist flows. Our finding is central to policymaking. At the macro level, tax on tourism services raises a negative response from demand but seems to matter less at the individual household level. Hence, further empirical analysis to shed light on the micro level impact of tourism taxes is highly desirable. Based on these, we highlight implications for marketers of domestic tourism and the role of government revenue generation policies.

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