Tourism Crisis Management: adjusting to a temporary downturn

There have been many instances where the tourism industry in one or more countries has suffered an unexpected and sudden downturn in demand. Policy makers are faced with the predicament of if and how they should respond to such crises in the absence of research into the relative effectiveness of different responses. The downturn in tourism demand in the United States following September 11 is a particularly vivid example of tourism crisis. If such a downturn is of a temporary nature, government policy tends to be aimed towards reducing the level of adjustment that takes place; if the downturn is judged to be permanent, government policies tend to be aimed towards making adjustment to a new equilibrium less costly. This paper examines the means of measuring the costs of adjustment within a CGE model and assesses how government policy can be most efficiently targeted towards reducing those costs. We construct a computable general equilibrium model of the US to analyze the effects of the September 11-induced tourism crisis and potential and actual policy responses to the crisis. A CGE model is a useful tool in evaluating tourism crises because it allows tourists to purchase a bundle of commodities, accounts for general equilibrium effects and allows the modeling of government responses to crisis. The model is a static 98-sector model of the US economy, with the specification of 23 types of labor to enable the modeling of employment responses to September 11. Tourism demands are specified as CES functions over a variety of goods and services, with different demands from foreign, domestic, and intermediate business tourists, each of which undertake non-air travel and air travel tourism trips. Shocks are applied to air travel tourism to simulate the effects that September 11 has had on the demand for travel, and the resulting impact on welfare, GDP, employment is calculated. The levels of factor adjustment that take place in the economy are measured. Further to this, the efficiency of federal government measures to counteract the fall in demand for air transport are modeled. The efficiency of various other possible federal government actions is also modeled. The model is built around a set of data taken from US national accounts sources. The inputoutput table is derived from the 1997 benchmark input-output table, with additional data on GDP by industry and national income and product account data used to update this table to construct a SAM that represents the US in 2001 without the effects of September 11. Other US national accounts sources are used to construct a matrix of tourist demands, by product and type of tourist. We find that sector-specific targeted subsidies and tax reductions are the most efficient means of tourism crisis management. The initial federal government responses to the crisis were efficient in counteracting the fall in tourism demand, but were not large enough to fully insulate producers from the effects of that fall. Calls for more general tax relief to tourism and tourism businesses are far less effective at saving job losses in tourism related industries.