| Abstract: |
This paper studies the relationship between air transportation, tourist _ows,
and subsidies to Low Cost Carriers (LCCs), a policy used by many national and
local governments to stimulate tourist arrivals. To test the policy
empirically, we use a two-stage empirical model. In the _rst stage, we
estimate a structural model applied to air transport, and in the second stage,
we link passenger arrivals to regional tourism _ows. In this way, we use
exogenous shocks (subsidies to LCCs) in airline supply to analyze the causal
link with tourist arrivals. This model is applied to tourist _ows from
European regions to Italian regions from 2016 to 2018. Our counterfactual
analyses consider two regimes for implementing subsidies to LCCs, following
the literature coming from Oates (1993, 1999) contributions: a centralized,
uniform policy for all regions and a decentralized policy in which subsidies
are adopted by a single region. Our simulations reveal that subsidies to LCCs
are e_ective in stimulating tourism, and that a centralized regime is more
e_ective than a decentralized one. In fact, the latter generates externalities
in regions that do not implement the subsidy, making the decentralised policy
economically sub-optimal and unsustainable. |