Economic Policy Responses to Covid-19 and Expenditures on Domestic Travel: International Evidence

Abstract

In response to the unprecedented circumstances resulting from the COVID-19 pandemic, various national government policies were implemented to reduce the serious economic damage caused by the pandemic and attempts to control it. These policies generally aimed to kick-start domestic-led recoveries in many sectors. This study examines how different types of fiscal measures adopted by governments in response to this pandemic are associated with the growth of expenditure on domestic travel in 2020. Utilizing data from 76 countries and applying OLS estimator and 2SLS regression (which mitigates the potential endogeneity problem), the study shows that governments’ additional spending and tax reductions (especially in non-health sectors) positively contributed to rising expenditure in domestic travel destinations. Similar results are found for countries that are very reliant on tourism. Our findings lend empirical support for Keynesian theory’s prediction concerning the effect of government spending and tax reduction on household consumption behavior in the short run, particularly during periods of economic stress and uncertainty.