Author(s)

Bharat Hazari¹, Jennifer T. Lai^2,3*

¹Lattice Analytics Pty Ltd., Melbourne, Australia.
²School of Finance, Guangdong University of Foreign Studies, Guangzhou, China.
³Southern China Institute of Fortune Management Research, Guangzhou, China.

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.

Congestion, Tourism, Dependency Model

Hazari, B. and Lai, J. (2020) Dependency Model with Congestion and Tourism. Theoretical Economics Letters, 10, 1044-1052. doi: 10.4236/tel.2020.105061.