Università degli Studi di Sassari Dottorato di ricerca Diritto ed economia dei sistemi produttivi XXVII ciclo (A.A. 2013-2014) EVALUATING TOURISM EXTERNALITIES IN DESTINATIONS: THE CASE OF ITALY Tesi di dottorato di ricerca di: Maria Giovanna Brandano Matricola 30047047 Direttore del dottorato Tutor: Gerardo Marletto Prof. Michele Comenale Pinto Co-tutor: Bianca Biagi Contents List of Tables IV List of Figures V Abstract 1 Introduction 2 CHAPTER 1 Tourism externalities: theory and empirical research 8 1.1 Introduction 8 1.2 Theory of externalities 8 1.2.1 Possible solutions to the externalities problem 12 1.3 Tourism externalities 16 1.4 Tourism externalities: findings of empirical research 20 CHAPTER 2 Tourism externalities: positive or negative effect? Motivations and key questions 24 2.1 Introduction 24 2.2 Empirical research and main findings 24 2.2.1 Sociocultural externalities: the example of crime 25 2.2.2 Economic externalities: the example of house prices 26 2.2.3 Environmental externalities: tourism taxation as a solution 28 2.3 Research questions and the contribution of the present study 31 2.4 The case study: tourism externalities in Italy 33 CHAPTER 3 Relation between tourism and crime: the Italian case 37 I Maria Giovanna Brandano Evaluating tourism externalities in destinations: the case of Italy Tesi di Dottorato in Diritto ed Economia dei Sistemi Produttivi Università degli Studi di Sassari 3.1 Introduction 37 3.2 The externality of tourism on criminal activity 39 3.3 Literature review 40 3.3.1 National and case-specific studies 42 3.3.2 Regional studies 43 3.4 Description of two phenomena: tourism and crime 45 3.5 Methodology: using panel data 48 3.5.1 Static and dynamic panels 49 3.5.2 Fixed and random effect 51 3.5.3 Estimating dynamic panels: endogeneity, serial correlation and unit root problems 52 3.6 Data and empirical model 56 3.7 Results 62 3.7.1 OLS estimates: results 63 3.7.2 GMM estimates: results 66 3.7.3 Decomposing the impact of tourists and residents on crime 70 3.8 Concluding remarks and limitations 74 CHAPTER 4 The effects of tourism on house prices in Italy 76 4.1 Introduction 76 4.2 The externality of tourism on housing market 77 4.3 Literature review 78 4.3.1 Hedonic price method (HPM) 78 4.3.2 Inverted demand approach 81 4.4 Data 83 4.4.1 House price in Italy 83 4.4.2 The tourism index 87 4.5 The model 90 4.5.1 The general model 90 4.5.2 Empirical model 92 4.6 The methodology 95 II Maria Giovanna Brandano Evaluating tourism externalities in destinations: the case of Italy Tesi di Dottorato in Diritto ed Economia dei Sistemi Produttivi Università degli Studi di Sassari 4.7 Results 98 4.7.1 Robustness checks 102 4.8 Concluding remarks and policy implications 108 Appendix 110 CHAPTER 5 Tourism taxation in Sardinia: a synthetic control analysis 114 5.1 Introduction and motivation 114 5.2 The externality of tourism on environment 114 5.3 Literature review 115 5.4 Tourism taxation in European countries 118 5.5 The methodology: Synthetic Control 123 5.6 The case study: Villasimius (Sardinia) 126 5.6.1 Tourist demand elasticity 129 5.7 Data 131 5.8 Results 132 5.8.1 Robustness check 135 5.9 Concluding remarks and limitations 137 Appendix 139 Final conclusions and further developments 149 References 151 III Maria Giovanna Brandano Evaluating tourism externalities in destinations: the case of Italy Tesi di Dottorato in Diritto ed Economia dei Sistemi Produttivi Università degli Studi di Sassari List of Tables Table 1.1 Tourism externalities on residents in the literature 19 Table 2.1 Evolution of tourist arrivals and nights of stay in Italy. Years 34 1962,72,82,92,2002 and 2012 Table 2.2 Evolution of tourist accommodation in Italy. Years 35 1962,72,82,92,2002 and 2012 Table 3.1 Recent studies on crime/tourism relationship 40 Table 3.2 Distribution of provinces for different levels of tourism and 47 crime Table 3.3 Explanatory variables: list 58 Table 3.4 Explanatory variables: descriptive statistics 59 Table 3.5 Panel OLS: results 64 Table 3.6 2SLS: results 66 Table 3.7 GMM-SYS: results 69 Table 3.8 GMM-SYS: additional results 73 Table 4.1 Sources of data on house prices in Italy 84 Table 4.2 House prices at regional level 87 Table 4.3 List of variables 94 Table 4.4 Descriptive statistics of variables 95 Table 4.5 Unit Root tests 96 Table 4.6 GMM-SYS: results 100 Table 4.7 GMM-SYS: results of the first robust check 103 Table 4.8 GMM-SYS: results of the second robust check 105 Table 4.8 GMM-SYS: results of the second robust check 106 bis Table 4.9 GMM-SYS: results of the third robust check 107 Table 4.9 GMM-SYS: results of the third robust check 108 bis Table 5.1 Tourism taxation in Europe 121 Table 5.2 Main characteristics of tourism tax in Villasimius (L.R. 128 n.2/2007) Table 5.3 Price elasticity of tourist demand in Villasimius. Year 2011 130 Table 5.4 Tourist arrivals predictor means before the tax 134 Table 5.5 Tourist nights of stay predictor means before the tax 135 Table 5.6 Tourist length of stay predictor means before the tax 135 Table 5.7 Cost-Benefit Analysis (year 2008) 136 Table A5.1 List of Italian municipalities applying tourist taxes in 2014 139 Table A5.2 List of variables 147 Table A5.3 Municipalities weights in the synthetic control 148 IV Maria Giovanna Brandano Evaluating tourism externalities in destinations: the case of Italy Tesi di Dottorato in Diritto ed Economia dei Sistemi Produttivi Università degli Studi di Sassari List of Figures Figure 1.1 The equilibrium (h*) and optimal (h°) levels of negative 11 consumption externalities Figure 1.2 The equilibrium (h*) and optimal (h°) levels of negative 12 production externalities Figure 1.3 The optimality-restoring Pigouvian tax 14 Figure 1.4 Positive and negative tourism externalities 16 Figure 2.1 Simplified scheme on environmental externalities 31 Figure 3.1 Time series of tourist arrivals and total crime offences 46 Figure 4.1 Real prices of new dwellings in Italy. 1967-2007 86 Map 4.1 Prices of housing in Italian provincial capitals. Year 2007 86 Map 4.2 Tourism in Italian provincial capitals. Year 2007 90 Figure 5.1 Map of Italy (A=Villasimius) 127 Figure 5.2 Trends in tourist arrivals: Villasimius vs. Synthetic control 133 Figure 5.3 Trends in nights of stay: Villasimius vs. Synthetic control 133 Figure 5.4 Trends in length of stay: Villasimius vs. Synthetic control 134 Figure 5.5 Tourism tax revenues allocation (year 2011) 137 V Maria Giovanna Brandano Evaluating tourism externalities in destinations: the case of Italy Tesi di Dottorato in Diritto ed Economia dei Sistemi Produttivi Università degli Studi di Sassari Abstract The present work analyzes tourism externalities in Italy, fifth country in the world and third in Europe for international arrivals (UNWTO, 2014). The main purpose is to empirically investigate on the relationships between tourism and externalities generated in tourist destinations. The thesis in divided into five chapters. Chapter 1 analyzes the theory of externalities and provides some examples of tourism externalities. In addition, a review of the literature is examined in order to highlight the lack of empirical analyses for European cases and in particular for Italy. Chapter 2 shows the main research questions, motivations and three cases study. In the last section of the chapter the main reasons are illustrated for analyzing the Italian case as suitable for the purpose of the present work. Chapter 3 focuses on the relationship between tourism and crime at Italian provincial level. Chapter 4 describes the link between tourist sector and house prices in Italian provincial capitals. Chapter 5 is devoted to the application of a method for policy evaluation on the impact of tourist taxation on tourist flows. Since taxation is usually employed in order to internalize environmental externalities, it is explored its distortive effect on tourist demand at municipality level. The case under analysis is Villasimius, Sardinian tourist destination. To do this the recent methodology of Synthetic Control is used. This study provides some evidence that a positive and significant link between crime and tourism exists. This indicates that tourism generates in the tourist destination not only benefits but also costs, such as those relative to the increase of criminal activities. Furthermore, the empirical analysis performed in Chapter 4 by using the Generalized Method of Moment (GMM), highlights that property prices in Italian cities can be affected by tourism activity. Finally, after evaluating the introduction of tourism taxation, results demonstrate first hints about the non- negative taxation effect on tourist flows. 1 Maria Giovanna Brandano Evaluating tourism externalities in destinations: the case of Italy Tesi di Dottorato in Diritto ed Economia dei Sistemi Produttivi Università degli Studi di Sassari “Tourism’s impacts typically are grouped into three categories: economic, sociocultural, and environmental/ecological (Bull 1991; Pearce 1989; Ryan 1991). Tourism’s non-economic (i.e., social and environmental) impacts can be either positive or negative (Bull 1991:163)” [Lindberg and Johnson, 1997]. Introduction International and domestic tourism demand has grown overtime and tourism represents one of the most important sectors worldwide. According to the World Tourism Organization (UNWTO henceforth) 1 data, in 2012 tourism receipts generated by tourism sector were 840 billion of euros and in 2013 international tourist arrivals reached 1,087 million.