The COVID-19 pandemic and domestic travel subsidies.

The spread of the coronavirus disease 2019 (COVID-19) has significantly reduced tourism demands worldwide. Employing weekly data on tourist flows between Japanese prefectures, we examine the cost-effectiveness of domestic travel subsidies. Our results provide two implications for the literature. First, we identify the underlying mechanism of tourist flows during the pandemic. In contrast to infectious diseases that have only local effects, the COVID-19 pandemic has decreased tourism demand not only to, but also from, severely affected regions, deteriorating tourism businesses even in areas not severely affected by the disease. Second, we confirm the effectiveness of a price-discount strategy in mitigating economic damage to the accommodation sector caused by the pandemic. • We examine the cost-effectiveness of travel subsidies during the COVID-19 pandemic. • The gravity model is estimated with tourist flow data between Japanese prefectures. • The pandemic decreases tourism demand both to and from severely affected regions. • A price-discount strategy is effective in mitigating economic damage to hotels. [ABSTRACT FROM AUTHOR]