More debt, less travel? Unravelling the effect of household debt on tourism consumption

Recent years have seen record levels of household debt in many countries. Despite ongoing interest in the debt–consumption relationship, little is known about how household debt affects tourism consumption. This study proposes a dual-path theoretical framework based on the theories of asset allocation and liquidity constraints to explain the nonlinear mechanism of household debt on tourism consumption. By empirically analysing large-sample Chinese household data, we find a significant nonlinear relationship between household debt and tourism consumption under the threshold effect of debt burden. As debt burden levels increase, the effect of debt on tourism consumption shows a U-shaped change that is initially negative, then positive, and finally insignificant, with debt-induced asset accumulation and liquidity constraint alterations being two key transmission paths involved. We also reveal key differences in debt’s effect on tourism consumption compared to total household consumption, and the heterogeneity of this effect across debt type and household characteristics.