Abstract

Policymakers are faced with the predicament of if and how they should respond to an unexpected and sudden downturn in tourism demand. In the past, they have made these decisions in the absence of research into the relative effectiveness of different responses. The downturn in the United States following September 11 is a particularly vivid example of tourism crisis. This paper analyzes the effects of this crisis using a computable general equilibrium model of the US and also examines potential and actual policy responses to the crisis. Sector-specific targeted subsidies and tax reductions are found to be the most efficient means of handling the situation.