International tourism and income inequality: The role of economic and financial development

Abstract

The effect of tourism growth on tourism destinations’ income inequality is an important question for policymakers. In this study, we explore if this relationship is affected by economic and financial development and their interactions. We find that tourism growth affects a country’s income inequality differently. Post-redistribution, tourism growth eases income inequality in the lower economic development regime but may worsen income inequality in the upper economic development regime. However, tourism growth helps to alleviate income inequality in the lower financial development regime but may also lessen income inequality in the upper financial development regime. We also find some evidence that improving opportunities to access finance does a better job of helping to utilise the effect of tourism growth on easing income inequality in more developed nations rather than their counterparts. In line with these, our results also indicate that inflation tends to have different effects on income inequality, subject to the selection of thresholds. Our results are drawn from a dynamic panel threshold approach across 71 developed and developing countries during 1996–2016.