The Dynamic Effects of Subsidizing the Tourism Sector
The 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 as a region within a country. We introduce a two-sector dynamic general equilibrium model where the tourism sector is considered to be labor-intensive and produces traded services. The other sector is capital-intensive and produces a nontraded good, which is also used for capital accumulation. Labor and capital can freely move between sectors. Economic decisions are made by forward-looking representative agents, which optimize their intertemporal welfare by choosing consumption of both the nontraded good and tourism services, the sectoral allocation of labor, and the rate of wealth accumulation. We 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 is falling. In the long run, compared to the situation before the subsidy was implemented, tourism production remains on a higher level, whereas output of the nontraded good drops.
|Date of creation:||2008|
|Date of revision:|
|Publication status:||Published in Tourism Economics 1.14(2008): pp. 57-80|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Schubert, Stefan F & Turnovsky, Stephen J, 2002. "The Dynamics of Temporary Policies in a Small Open Economy," Review of International Economics, Wiley Blackwell, vol. 10(4), pages 604-22, November.
- Pasquale M. Sgro & Jean-Jacques Nowak & Mondher Sahli, 2004.
"Tourism, Trade and Domestic Welfare,"
2004.24, Fondazione Eni Enrico Mattei.
- 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.
- Stephen J. Turnovsky & Partha Sen, 1995.
"Investment In A Two-Sector Dependent Economy,"
31, Centre for Development Economics, Delhi School of Economics.
- 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.
- 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,"
PSE Working Papers
- Pasquale M. Sgro & Chi-Chur Chao & Bharat R. Hazari & Jean-Pierre Laffargue & Eden S. H. Yu, 2005. "Tourism, Jobs, Capital Accumulation and the Economy: A Dynamic Analysis," Working Papers 2005.136, Fondazione Eni Enrico Mattei.
- 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..
- Marie-Antoinette Maupertuis & L. Dwyer & J.-J. Nowak & M. Sahli, 2007. "Tourism Economics," Post-Print halshs-00635048, HAL.
- M. Thea Sinclair, 1998. "Tourism and economic development: A survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(5), pages 1-51.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:16755. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.