TITLE:
Dependency Model with Congestion and Tourism
AUTHORS:
Bharat Hazari, Jennifer T. Lai
KEYWORDS:
Congestion, Tourism, Dependency Model
JOURNAL NAME:
Theoretical Economics Letters,
Vol.10 No.5,
September
29,
2020
ABSTRACT: 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.