How Can Residents’ Air Transport Subsidies Affect Outbound Tourism behavior on Islands? Evidence from Spain

Abstract

Subsidizing residents on airlines is a common policy in a number of countries. However, the question arises as to how changes in this policy affect the travel behavior of residents in specific regions? To address this, we analyze the effect of an “exogenous shock” (i.e., an increase in the resident subsidy) on two Spanish archipelagos when they travel away from the islands. Our Difference-in-Difference and matching estimations find that the causal impact of the policy change is different for resident passengers across the two regions affected. Although the length of stay was reduced for resident passengers in both archipelagos by 10%–15% after the shock, their expenditure at destination per day increased by 13% on the Balearic Islands, while showing no significant change on the Canary Islands. J.E.L. Codes: L83; H25; L93