Assessing the impact of high energy prices on tourism in the EU

• A CGE model is used to capture demand effects driven by high energy costs. • Energy price shocks indirectly affect EU tourism by reducing households’ disposable income. • Tourism output losses may exceed those of more energy-intensive sectors. • The findings emphasize the importance of capturing the indirect effects of energy price shocks. In this paper, we use the computable general equilibrium model JRC-GEM-E3 to assess how energy price shocks affect the tourism industry in the EU. The tourism sector itself is not particularly energy-intensive and thus the direct effect of higher energy prices likely is small. However, there are indirect effects that make the tourism sector sensitive to changes in energy prices. When energy prices increase, it forces households to spend a larger share of their budget on energy to fulfil their basic needs. Households then have less disposable income available to spend on luxury goods, and therefore cut purchases on goods and services with a high income elasticity, including tourism. Furthermore, purchases of tourism services often require transport services as a complement, and the increased price of transport services also affects the price of the bundle of the two services. The results suggest that relative output losses of the tourism sector can be larger than those of other more energy-intensive sectors because of these indirect effects.