Congestion Taxes Best Solution for Overtourism, But Creates Unequal Access
By Thierry Malleret
Tuesday, 17th September 2019

There is a risk of the trade war morphing into a currency war and just as for a trade war, a currency war has no winners, Plus the possible benefits of depreciating a currency (like the hope of boosting growth) are small and elusive, while the risks are considerable (a spiral of capital flows and further depreciation).

To date, exchange rates volatility is “only” hurting investment and productivity, but beware of competitive currency depreciations that would set into motion a “beggar-thy-neighbor” tit-for-tat with devastating fallout for the global economy and polity.

Currencies’ appreciation and depreciation play a fundamental role in determining the vitality of inbound tourism and, to a significant extent, the wellness tourism industry of any particular country. A strong (i.e., appreciating) currency curtails the purchasing power of tourists while a weak (i.e., depreciating) currency does the opposite.

Put in the simplest possible terms, an appreciating currency does two things to the tourism industry and its “ecosystem” (to which wellness partly belongs):

  1. It cuts visitors’ arrivals, and
  2. it decreases the average amount of money spent by visitors).

Japan illustrates this point “to perfection”: Last year, it received 31.9 million foreign visitors—a sharp increase of 8.7 percent compared to the year before. This hike in visitor numbers can, to a large extent, be attributed to the depreciation of the Japanese yen.

When tourist numbers exceed a level that is considered “acceptable” by the local population, the issue of overtourism rears its (sometimes) ugly head. Not every single example of overtourism is caused by currency depreciation, but it clearly is in the case of Japan, where many locals complain about how overtourism threatens historical sites and disrupts local markets.

Globally, the problem of overtourism is growing to such proportions that it’s hard to imagine how it can be addressed without some kind of “tourism” or congestion tax. Many destinations where too much tourism creates what economists call in their jargon “congestion externalities” are trying different things to alleviate the problem, such as spreading tourists to less crowded parts of the city (e.g., Rome) or cutting back on tourism advertising (e.g., Amsterdam), but this is nigh on ineffective, comparable to cauterizing a wooden leg.

Congestion pricing (i.e., implementing taxes on hotels and other types of accommodation or, more simply, on tourists themselves) is the most sensible and effective solution to the challenge of overtourism.

But there is an unintended, unwanted consequence: It reinforces social inequality and hits the emerging global middle class. In the future, it may be that only “premium” travelers will be able to go to Venice or to climb Mont-Blanc (let alone Mount Everest, which now costs roughly $40,000 per person).

By Thierry Malleret, economist / This article first appeared at the Global Wellness Institute - www.globalwellnessinstitute.org

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