| Abstract: |
Using data on Italian cities, we document that, over the period 2001 – 2011,
the number of establishments and employment in some key service industries are
positively related to the inflow of tourists. We then build a general
equilibrium model of small open cities to study the impact of tourism on
endogenous amenities, factors’ allocation across sectors, prices, and welfare.
Tourism has two main effects on the urban economy: first, consistently with
the observed pattern in the data, it increases the number of firms (an
endogenous consumption amenity) and employment in the non-tradable sector;
second, it increases prices. In the model tourism may hurt the resident
population: with unequal land endowments, poorer residents are hurt by tourism
because the rise in city prices offsets the positive impact on the urban
consumption amenity. Along with several other extensions to the baseline
model, we study the interplay of historical (exogenous) amenities, tourism and
residents welfare in a system of two cities. |