Tourism interactions and redistribution effects in the Balearic Islands: A SAM analysis

Clemente Polo

Department of Economics and Economic History

Universitat Autònoma de Barcelona

Mailing address: Edifici B. Facultad de Ciencias Económicas.

Universitat Autònoma de Barcelona CP 08193

Bellaterra (Barcelona) Spain

Phone: 0034935811816 Fax: 0034935812012

Email:

Elisabeth Valle

Department of Applied Economics

Universidad de las Islas Baleares

Mailing address: Crtra de Valldemossa, km 7,5 CP 07122

Palma de Mallorca (Baleares) Spain

Phone: 0034971171325 Fax: 0034971172389

Email:

(Corresponding Author)

Clemente Polo is Professor of Economics at the department of Economics and Economic History at the Universidad Autónoma de Barcelona. Elisabeth Valle is Assistant Professor at the department of Applied Economics at the Universidad de las Islas Baleares. We thank the comments and suggestions made at the 4th Biennial Conference of the International Association for Tourism Economics (IATE). Of course, all remaining errors are the sole responsibility of the authors.


Tourism interactions and redistribution effects in the Balearic Islands: A SAM analysis

Abstract:

This paper presents the first social accounting matrix of the Balearic Islands with several households. It has 62 accounts and the information provided is used to specify numerically three alternative models. The models provide new estimates of the weight of tourism in the BI economy. They also shed new light on the interactions among tourism oriented sectors and the rest of sectors and allow to quantify the redistribution effects of tourists’ expenditure. The SAM has been constructed by the authors ‘closing’ the 2004 input-output table with data from the Regional Accounts and other statistical sources. The analytical part of the paper uses three linear models defined by the appropriate partition of the matrix into endogenous and exogenous accounts. The results of the paper clearly indicate that the more encompassing models provide a fairer picture of tourism effects.

Keywords: Social accounting matrix; intersectoral linkages; impact analysis; redistributive effects.

1.  Introduction

This paper presents the first social accounting matrix (SAM) of the Balearic Islands (BI) with several households. The SAM is then employed to estimate the weight of tourism in the BI economy and to calculate the interactions among tourism oriented sectors and the rest of the economy as well as the redistribution effects of tourists’ expenditure. The SAM has been constructed by the authors ‘closing’ the 2004 input-output table with data from the Regional Accounts, the Consumers’ Expenditure Survey and other statistical sources. The analytical part of the paper uses three linear models defined by the appropriate partition of the SAM’s accounts into endogenous and exogenous. The results of the paper clearly indicate that the more encompassing models provide a fairer picture of tourism effects.

Input-output (IO) models have been used since the 60’s of the last century to quantify the impact of international tourism expenditure in large, medium and small national economies as well as the effects of tourism flows in regions, counties, cities and recreational areas. The main advantage of IO models is that they can be readily implemented since input-output tables are routinely constructed for many countries and even regions.[1] In the last two decades, SAM and CGE models have also been applied to analyze the effects of tourism. They can be viewed as natural extensions of Leontief’s open IO model by which some exogenous expenditure decisions are made endogenous. Their implementation requires to “balance” the households, government, investment and external accounts; and the reward for this extra effort is that SAM models make possible to calculate “induced” effects and distribution effects.[2] A shortcoming of both IO and SAM models is that they assume fixed “technical” and “expenditure” coefficients and often ignore resource constraints. A thorough review of the literature can be found in Polo and Valle, 2012.

SAM models have been employed to study tourism impacts in national, regional and small economies during the last two decades. Since expenditure coefficients are ratios of SAM entries to column totals, the only requisites to estimate tourism impacts are the economy’s SAM and the vector of tourists’ expenditures. The fact that many national statistical offices in developed economies publish IO tables along with national accounts but only a handful elaborate SAMs has hampered its use in tourism studies. For many developing countries, SAMs have been assembled to explore “the links between growth, inequality and employment, and… how the extent of poverty and changes in it are related to familiar issues of savings and investment, balance of payments, production and distribution”.[3] SAMs constructed for those purposes can nevertheless be employed to quantify the role tourism in the economy and its impact on households’ welfare.

The list of tourism studies based on SAM’s is rather short. An early and rather complete study is West’s (1993) analysis of tourism in Queensland that combines a regional SAM with econometric time series analysis. Wagner (1997) compiled a SAM for Guaraqueçaba, a small community in the coast of Brazil, combining different national, regional and survey data sources, to study the impact on the village of small scale tourism. Polo and Valle (2007, 2008 and 2009) constructed a regional SAM for the Balearic Islands. Polo and Valle (2007) compare the effects of a 10 % fall in tourism expenditures employing three alternative SAM models. Polo et al. (2006 and 2008) use IO and SAM models to estimate the impact on employment and added value of a hypothetical change in tourists’ expenditures from low to high value-added hotels. Jones (2010) estimates the impact of tourism in Mozambique using a ‘tourism-focused’ SAM that includes some auxiliary accounts for domestic tourists (household, firms and government, and investment) and foreign tourists (business, self-drive and other leisure type).

The paper is structured as follows. Section 2 presents the main features of the 2004 SAM of the Balearic Islands (SAM-BI04). In section 3, the basic algebra employed of SAM models is presented. The generalized multiplier matrix, Rasmussen indexes and the weight of non-residents’ consumption are discussed in Section 4. In the same section, the redistribution effects of tourism impact are compared with those resulting from injections in other exogenous accounts such as public consumption and exports. The main conclusions of this research are discussed in the final section.

2. The 2004 SAM of the Balearic Islands

A SAM is an ordered double-entry table that provides a disaggregated and consistent picture of the circular flow of income. It covers transactions generated in the production of goods and services, the generation and distribution of income and income expenditure. For commodity accounts, equality between total row and column entries can be interpreted as commodity balances. Distribution accounts, on the other hand, assign income generated in production among the institutions. Finally, institutions use their income to acquire consumption commodities and finance investment.

The concept of a SAM first appeared in the revised SNA published by the UN in 1968 that also included a full fledged IO table replacing the production account in the 1953 SNA. According to Stone, the intellectual architect of the SNA, the SAM was a compact, efficient and flexible way to present the increasingly complex accounts structure. Although it is true that a SAM can simply be seen as a way of presenting the National Accounts or even as an extension of an IO table, the concept offers the possibility of presenting on an equal footing production and distribution operations.[4] In other words, a true SAM should also include a breakdown of the household account to examine distribution impacts.

The 2004 SAM of the BI is the first attempt in this direction. It includes 62 accounts and a simplified version appears in Table 1. There are 24 production accounts that correspond to the sectoral breakdown included in the 2004 IO framework of the BI. Each domestic sector produces a homogeneous output using intermediate, labor and capital services and equivalent imports. Total output is distributed among production sectors and other non-production accounts. The SAM distinguishes 12 consumption commodities produced with produced commodities. It also distinguishes 6 types of fix capital goods.[5] Transactions in the production-consumption sphere are subject to taxes on production and products and social security contributions.

Income accruing to labor (wages and salaries), and capital (gross operating surplus / mixed income) are distributed among non-commodity accounts that include domestic institutions (resident households, corporations, government and nonprofit institutions serving households) and the foreign sector. Non-resident households receive income from the foreign sector that in turn derives also income from imports by domestic sectors. The SAM also contemplates redistribution operations among non-commodity accounts that include income taxes paid by households and corporations and transfer operations (unemployment benefits; disability, retirement, widowhood and orphan hood pensions, temporary disability, maternity, family protection, etc.) among non-commodity accounts.

A worth noting contribution of this article is that for the first time it offers a breakdown of resident households defined by socioeconomic criteria. After extracting the BI households subsample from Continuous Consumers’ Expenditure Survey, the limited information available was used to estimate capital and labor endowments for five representative households defined by the situation of its principal breadwinner: employed workers, employed workers temporarily absent, unemployed, disabled and retired. Resident households receive also current transfers from the government, non-profit organizations and the foreign sector. Residents’ households finance with their income consumption purchases (inside and outside the economic territory) and pay income taxes. Domestic investment equals the sum of domestic institutions’ savings and the foreign sector surplus.

3. The algebra of SAM models

In this section, we briefly present the algebra of SAM models and discuss their numerical specification.

SAM models

Let be a SAM, i.e., a square matrix that records transactions arising in the circular flow of income (production, income generation, income distribution and income expenditure) of an economy. The elements in the th row indicate the sources of income accruing to the th account, and those in the th column its expenditures. Thus, row (column) sums indicate the total income accruing (spent or saved) by accounts. In a SAM, row totals (revenues) equal column totals (outlays):

(1)

A SAM may include accounts for industries, commodities, institutional sectors (households, non-profit institutions, corporate sector, public administrations and foreign sectors), capital (savings-investment), and as many auxiliary accounts as needed. (1) implies that the value of sales equals total costs in any industry; the value of demands equals the value of supply for commodities; and total revenues equal total expenditures and savings for institutions.

Expenditure coefficients can be defined as

(2)

and (1) can be expressed in terms of them

(3).

The right hand term in (3) can be split in two terms: one for the income accruing from the accounts the first accounts, considered endogenous, and the other for remaining accounts taken as exogenous:

(4)

Identities (4) become a system of equations when the exogenous incomes and the expenditures coefficients are assumed to be fixed. Assuming that units of products, commodities and factors are chosen so that their prices are equal to 1, some fix expenditure coefficients (interindustry, industry-commodity, primary factors) can be interpreted as technical coefficients and the results obtained with SAM models compared with those of IO models.[6] For unitary prices, balance conditions (4) can be interpreted as zero profit conditions for industries, demand and supply equilibrium conditions for commodities and budget constraints for institutions. Having made these assumptions we drop the tilde from the coefficient expenditures.

Once the partition of accounts is done, matrix can be partitioned accordingly

and (4) be written as

(5)

where and are the vectors of endogenous and exogenous income, respectively. From equation (5) one can derive the vector of endogenous income

(6)

being the vector of exogenous income. is ​​the multiplier matrix and can be interpreted as the increase in income of account brought about by a unit injection into account.

Redistribution effects in SAM models

The effects of exogenous injections on relative incomes can be easily calculated. First, the vector of relative incomes is written in matrix form

(7)

being a row vector of ones. Then variation of the vector of relative incomes resulting from exogenous injections is given by the redistribution matrix

(8)
whose is

(9)

The sign is determined by the parentheses and is positive if and only if

i.e., if the marginal relative effect on (the term on the left-hand side of the equality) is greater than the relative income of (the right-hand term of the inequality). It can easily be checked that the sum of the elements of each column of the redistribution matrix is zero

.


Numerical specification of SAM models

Leaving aside for the moment concerns about the underlying assumptions made in a SAM model, the fact is that they have been routinely employed to measure the weight of tourism in the economy and quantify tourism impacts on output, income and employment. These models can be applied if the appropriate information is available: a SAM for the economy at hand and a vector of tourists’ expenditures by sector valued at the base year prices. Of course, one may subdivide the tourists’ vector into as many vectors as types of tourists data allows to differentiate and calculate their individual contributions and impacts.[7]

If an SAM is available, the only difficulty to apply the model is to cast tourists’ expenditures into a vector congruent with the classification employed and the way transactions are valued in the SAM. To begin with, when the SAM is dated at year and the impact occurs at , vector has to be valued at time prices.[8] Moreover, tourists’ expenditures include distribution and transportation margins and product taxes that need to be eliminated to make them congruent with SAM. As Cooper and Pigram (1984) point out, they have be valued as transactions are in the table, i.e., excluding margins and taxes. In the case of domestic tourism, adjustments have also to be made to deduct expenditures that would have been made anyway and add pre-trip expenditures not included in reported tourists’ expenditures. The development of Tourism Satellite Accounts (TSA) can provide adequate estimates of tourists’ demand to be used jointly with SAM to analyze its impact on the economy.