IDEAS home Printed from https://ideas.repec.org/a/sae/toueco/v14y2008i1p57-80.html
   My bibliography  Save this article

Dynamic Effects of Subsidizing the Tourism Sector

Author

Listed:
  • Stefan F. Schubert
  • Juan Gabriel Brida

Abstract

This paper studies the short-run and long-run effects of a production subsidy to the tourism sector of a small open economy, which can also be thought of as a region within a country. The authors introduce a two-sector dynamic general equilibrium model in which the tourism sector is considered to be labour-intensive and produces traded services. The other sector is capital-intensive and produces a non-traded good, which is also used for capital accumulation. Labour and capital can move freely between sectors. Economic decisions are made by forward-looking representative agents which optimize their intertemporal welfare by choosing consumption of both the non-traded good and tourism services, the sectoral allocation of labour and the rate of wealth accumulation. The authors discuss the short-run, dynamic and long-run effects of a production subsidy to the tourism sector. In the short run, the introduction of a subsidy to tourism production leads to a boom in that sector. As time passes, the economy-wide capital stock is decumulated and production of tourism falls. In the long run, compared to the situation before the subsidy was implemented, tourism production remains on a higher level, whereas output of the non-traded good drops.

Suggested Citation

  • Stefan F. Schubert & Juan Gabriel Brida, 2008. "Dynamic Effects of Subsidizing the Tourism Sector," Tourism Economics, , vol. 14(1), pages 57-80, March.
    • Handle: RePEc:sae:toueco:v:14:y:2008:i:1:p:57-80
    DOI: 10.5367/000000008783554767
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.5367/000000008783554767
    Download Restriction: no
    File URL: https://libkey.io/10.5367/000000008783554767?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Pasquale M. Sgro & Jean-Jacques Nowak & Mondher Sahli, 2004. "Tourism, Trade and Domestic Welfare," Working Papers 2004.24, Fondazione Eni Enrico Mattei.
    2. Barro, Robert J, 1974. "Are Government Bonds Net Wealth?," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1095-1117, Nov.-Dec..
    3. Stefan F. Schubert & Stephen J. Turnovsky, 2002. "The Dynamics of Temporary Policies in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 604-622, November.
    4. Chi-Chur Chao & Bharat R. Hazari & Jean-Pierre Laffargue & Pasquale M. Sgro & Eden S. H. Yu, 2005. "Tourism, jobs, capital accumulation and the economy: A dynamic analysis," Working Papers halshs-00590811, HAL.
    5. Brock, William A & Turnovsky, Stephen J, 1981. "The Analysis of Macroeconomic Policies in Perfect Foresight Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(1), pages 179-209, February.
    6. Marie-Antoinette Maupertuis & L. Dwyer & J.-J. Nowak & M. Sahli, 2007. "Tourism Economics," Post-Print halshs-00635048, HAL.
    7. repec:bla:pacecr:v:8:y:2003:i:3:p:245-258 is not listed on IDEAS
    8. Stephen J. Turnovsky, 1997. "International Macroeconomic Dynamics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262201119, April.
    9. Cees van Beers & André de Moor, 2001. "Public Subsidies and Policy Failures," Books, Edward Elgar Publishing, number 2040.
    10. Ramesh Durbarry, 2004. "Tourism and Economic Growth: The Case of Mauritius," Tourism Economics, , vol. 10(4), pages 389-401, December.
    11. Turnovsky Stephen J. & Sen Partha, 1995. "Investment in a Two-Sector Dependent Economy," Journal of the Japanese and International Economies, Elsevier, vol. 9(1), pages 29-55, March.
    12. M. Thea Sinclair, 1998. "Tourism and economic development: A survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(5), pages 1-51.
    13. repec:bla:reviec:v:10:y:2002:i:4:p:604-22 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Stefan F. Schubert, 2010. "Coping with Externalities in Tourism: A Dynamic Optimal Taxation Approach," Tourism Economics, , vol. 16(2), pages 321-343, June.
    2. Bernini, Cristina & Pellegrini, Guido, 2013. "Is subsidising tourism firms an effective use of public funds?," Tourism Management, Elsevier, vol. 35(C), pages 156-167.
    3. Juan Gabriel Brida & Silvia London & Mara Rojas, 2013. "A Dynamic Model of Tourism and Economic Growth: the Role of Physical and Human Capital," Economics Bulletin, AccessEcon, vol. 33(2), pages 1361-1373.
    4. Peter Josef Stauvermann & Ronald Ravinesh Kumar, 2017. "Modeling economic growth with tourism for small open economies," Metroeconomica, Wiley Blackwell, vol. 68(4), pages 1001-1018, November.
    5. David Perrain & Philippe Jean-Pierre, 2019. "The smart destination strategy, a key factor for changes in vulnerable tourist destinations? [La stratégie de destination intelligente, facteur clé des mutations des destinations touristiques vulné," Post-Print hal-02144769, HAL.
    6. David Perrain & Philippe Jean-Pierre, 2020. "Tourisme et croissance économique dans les petites économies insulaires : à l'épreuve des modèles à seuil," Working Papers hal-02462562, HAL.
    7. Roberto Gabriele & Enrico Tundis, 2015. "Contesto regionale, struttura economica e impatto delle politiche regionali: il caso degli alberghi in Trentino," SCIENZE REGIONALI, FrancoAngeli Editore, vol. 2015(3 Suppl.), pages 37-59.
    8. Leyi Zheng & Junfeng Liu & Qiong Yang & Yuqing Wang & Ying Liu & Xiurong Hu & Jianying Hu & Yi Wan & Xuejun Wang & Jianmin Ma & Xilong Wang & Shu Tao, 2023. "The Impacts of China’s Resident Tourism Subsidy Policy on the Economy and Air Pollution Emissions," Sustainability, MDPI, vol. 15(10), pages 1-16, May.
    9. Roberto Gabriele, & Enrico Tundis, & Enrico Zaninotto, 2015. "Public Subsidies and Development of Hotel Industry: Evidence from a Place-based Policy," DEM Discussion Papers 2015/10, Department of Economics and Management.
    10. Stefan F. Schubert, 2016. "A short-run model of a two-sector economy with tourism and unemployment," Tourism Economics, , vol. 22(4), pages 763-778, August.
    11. Schubert, Stefan Franz & Brida, Juan Gabriel, 2009. "A Dynamic Model of Economic Growth in a Small Tourism Driven Economy," MPRA Paper 16737, University Library of Munich, Germany.
    12. Stauvermann, Peter Josef & Kumar, Ronald Ravinesh, 2016. "Economics of tourism & growth for small island countries," Tourism Management, Elsevier, vol. 55(C), pages 272-275.
    13. Roberto Gabriele & Enrico Tundis, 2015. "the effect of longitudinal multiple subsidies on firm performance in the presence of neighbour interactions," ERSA conference papers ersa15p1368, European Regional Science Association.
    14. Stauvermann, Peter Josef & Kumar, Ronald Ravinesh, 2017. "Productivity growth and income in the tourism sector: Role of tourism demand and human capital investment," Tourism Management, Elsevier, vol. 61(C), pages 426-433.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schubert, Stefan Franz & Brida, Juan Gabriel, 2009. "A Dynamic Model of Economic Growth in a Small Tourism Driven Economy," MPRA Paper 16737, University Library of Munich, Germany.
    2. Juan Gabriel Brida & Stefan Franz Schubert, 2008. "The Economic Effects Of Advertising On Tourism Demand," Economics Bulletin, AccessEcon, vol. 6(45), pages 1-16.
    3. Olivier Cardi, 2007. "The Zero‐root Property: Permanent vs Temporary Terms‐of‐trade Shocks," Review of International Economics, Wiley Blackwell, vol. 15(4), pages 782-802, September.
    4. Isabel Cortés-Jiménez & Manuel Artís, 2005. "The role of the tourism sector in economic development - Lessons from the Spanish experience," ERSA conference papers ersa05p488, European Regional Science Association.
    5. Schubert Stefan F. & Turnovsky Stephen J., 2006. "Anticipated Fiscal Policy Changes and Goods Market Adjustments," German Economic Review, De Gruyter, vol. 7(2), pages 135-161, May.
    6. Judd, Kenneth L, 1987. "The Welfare Cost of Factor Taxation in a Perfect-Foresight Model," Journal of Political Economy, University of Chicago Press, vol. 95(4), pages 675-709, August.
    7. Olivier Cardi & Romain Restout, 2014. "Unanticipated vs. Anticipated Tax Reforms in a Two-Sector Open Economy," Open Economies Review, Springer, vol. 25(2), pages 373-406, April.
    8. Tang, Chor Foon, 2011. "Tourism, real output and real effective exchange rate in Malaysia: a view from rolling sub-samples," MPRA Paper 29379, University Library of Munich, Germany.
    9. Yasuhiro Nakamoto & Koichi Futagami, 2016. "Dynamic Analysis of a Renewable Resource in a Small Open Economy: The Role of Environmental Policies for the Environment," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(3), pages 373-399, July.
    10. Cheam Chai Li & Rosli Mahmood & Hussin Abdullah & Ong Soon Chuan, 2013. "Economic Growth, Tourism and Selected Macroeconomic Variables: A Triangular Causal Relationship in Malaysia," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 7(2), pages 185-206, May.
    11. Gawande, Kishore & Maloney, William & Montes-Rojas, Gabriel, 2009. "Foreign informational lobbying can enhance tourism: Evidence from the Caribbean," Journal of Development Economics, Elsevier, vol. 90(2), pages 267-275, November.
    12. Bo Zhou & Yanping Xu & Seul Ki Lee, 2019. "Tourism development and regional production efficiency: Evidence from southwestern China," Tourism Economics, , vol. 25(5), pages 800-818, August.
    13. Buiter, Willem H. & Sibert, Anne C., 2007. "Deflationary Bubbles," Macroeconomic Dynamics, Cambridge University Press, vol. 11(4), pages 431-454, September.
    14. Olivier Cardi & Romain Restout, 2007. "Permanent vs Temporary Fiscal Expansion in a Two-Sector Small Open Economy Model," Working Papers 0720, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    15. Romain Restout, 2008. "Monopolistic Competition and the Dependent Economy Model," Working Papers 0803, Groupe d'Analyse et de Théorie Economique Lyon St-Étienne (GATE Lyon St-Étienne), Université de Lyon.
    16. Matthias Birkner & Niklas Scheuer & Klaus Wälde, 2023. "The dynamics of Pareto distributed wealth in a small open economy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 76(2), pages 607-644, August.
    17. Valerie Cerra & Serpil Tekin & Stephen Turnovsky, 2009. "Foreign Transfers and Real Exchange Rate Adjustments in a Financially Constrained Dependent Economy," Open Economies Review, Springer, vol. 20(2), pages 147-181, April.
    18. Stauvermann, Peter Josef & Kumar, Ronald Ravinesh, 2017. "Productivity growth and income in the tourism sector: Role of tourism demand and human capital investment," Tourism Management, Elsevier, vol. 61(C), pages 426-433.
    19. Robertico Croes & Manuel A. Rivera, 2017. "Tourism’s potential to benefit the poor," Tourism Economics, , vol. 23(1), pages 29-48, February.
    20. Aviral Kumar Tiwari, 2011. "Tourism, Exports and FDI as a Means of Growth: Evidence from four Asian Countries," Romanian Economic Journal, Department of International Business and Economics from the Academy of Economic Studies Bucharest, vol. 14(40), pages 131-151, June.

    More about this item

    Keywords

    dynamic open economy two-sector model; subsidies; deindustrialization;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:toueco:v:14:y:2008:i:1:p:57-80. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.