Abstract
This paper presents results regarding the impact of regional and international tourism on the welfare of the domestic economy in the presence of congestion. The model used for this purpose is the dependency model of trade. Three main results are obtained from our investigation. First, it is established that an increase in regional tourism is welfare enhancing in the absence of congestion externalities due to an improvement in the tertiary terms of trade. Second, it is shown that in the presence of congestion, the welfare effect of an increase in tourism is ambiguous as there are three effects: 1) an improvement in the tertiary terms of trade, 2) a congestion effect and 3) a favorable effect on congestion via a decline in it due to the price effect. To correct the distortions policy intervention is required. This takes the form of two simultaneous policies: a tax on the goods consumed by the tourists and a tax on congestion by creating property rights. The results are of great significance for policy making.
Highlights
We first present results with no congestion effects to highlight the tertiary terms of trade effect of an increase in regional tourism and its welfare implications
The issue of optimal tax is addressed for this case. To our knowledge this type of analysis is new in tourism literature
The main message of the paper is that policy makers dealing with tourism should try to optimize policy making in order to reduce congestion and capture the gains from monopoly power in trade
Summary
The object of this paper is to analyze the impact of tourism on congestion where. B. We introduce three types of tourists in the model: local tourists who are the residents of the city where such goods are located, for example, Parisians for seeing Notre-Dame, residents of Agra for seeing the TajMahal and residents of Chengdu for seeing the Pandas. There are three consuming agents of the club type good: local residents, regional domestic tourists and foreigners. At this point, it is important to point out that there are two terms of trade in the model: the standard terms of trade between exportables and importables and the tertiary terms of trade between the consumption of non-traded good and an importable good. The same result can be achieved by taxing regional tourists if the society does not have the political desire to tax the local residents
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