Dynamic spatio-temporal modelling of tourism impact on income inequality and polarization: Inbound and domestic flows in the EU

Concern about income distribution has spread worldwide owing to its connections with social unrest and conflict. For this reason, the European Union (EU) pays special attention to its Cohesion Policy, thus fulfilling its commitment to equity and ensuring its own economic, social and political sustainability. This paper aims to assess the impact of tourism on income inequality and polarization with a view to guiding income distribution policies, particularly the EU Cohesion Policy. Specifically, we control for spatial dependence to determine the impact of tourism both in destinations and their neighbouring regions. We also consider non-linear relationships to detect possible changes over time in the effects of tourism on income distribution. Additionally, we contrast inbound and domestic tourism since the characteristics of these flows can have differential effects on the results. Dynamic Spatio-temporal estimations are applied to EU NUTS-1 data using spatial lag of X (SLX) models. Our estimations indicate that total tourism hinders income distribution in destinations showing an inverted-U-shaped relationship with income inequality and polarization. We find that inequality and polarization increase with inbound tourism but decrease with domestic tourism. Moreover, the two typologies improve income distribution in regions neighbouring tourism destinations. Both types of tourism cause direct, indirect and induced effects of different intensity. Policy actions applicable to other geographical contexts are proposed targeting the tourism supply structure, labour market regulation and structural competitiveness jointly with measures to effectively manage the transition to a knowledge-based economy and strengthen social protection systems, particularly in education, health, unemployment and retirement. • Concern about income distribution spreads worldwide and in the EU. • Tourism impact in income inequality and polarization follows an inverted-U shape. • Inbound tourism increases inequality and polarization; domestic one reduces them. • Tourism improves income distribution in neighbouring regions to destinations. • Decision making must cover a wide set of economic policy areas.