Evaluating the effect of air transport resident subsidies on non-residents tourist`s expenditure

Abstract

Several countries around the world have implemented policies to subsidize passengers who live on islands and travel domestically by air transport. This paper analyzes the effect of an exogenous change in the percentage of air transport resident subsidies in Spain on non-residents tourists' expenditure per day and overnight stays in corresponding regions. Drawing on monthly data from the period 2015-2019, a difference-in-difference estimator is applied, in addition to several robustness checks and placebo tests. We found a negative causal relationship between raising the subsidy percentage and non-residents tourists' expenditure per day on affected routes (routes between the mainland and islands). In fact, estimations show a reduction of between 9.6 and 12.2 per cent of non-residents tourists' expenditure per day on the Canary Islands.