Abstract
The present paper investigates the determinants of tourists' expenditure by categorizing tourists based on their mental budgets. Individuals can be divided into three categories based on the difference between their mental budget and actual expenditure: underspenders, on-budget spenders, and overspenders. Estimation of the empirical model is performed based on data collected through a survey of visitors to the Christmas Market in Merano, Italy during Advent in 2011. The estimation is performed with the Heckman estimator, ordered probit selection rule, and linear regression. We find that the spending patterns of visitors belonging to the three identified categories differ significantly. Analyzing visitors’ expenditure based on the proposed categorization allows us to identify category-specific factors and develop management strategies for each category. The managerial and theoretical implications of the results are discussed.