Effects of Domestic Tourism on Urban-Rural Income Inequality: Evidence from China

Most studies examining the relationship between domestic tourism and urban-rural income inequality have found a positive correlation. However, the causal link between them is difficult to establish due to many potential sources of endogeneity. By including World Heritage Site (henceforth WHS) designation in the set of instruments, this paper estimates the causal effects of domestic tourism on urban-rural income inequality within 31 China's provinces from 1998 to 2018. Our results show that developing domestic tourism can reduce urban-rural income inequality by raising income of rural residents more than twice as much as that of urban residents. Specifically, a 10% increase in domestic tourism earnings could increase the average disposable income of urban residents by 0.35% and that of rural residents by 0.94%, resulting in a 0.59% reduction in the urban-rural income ratio. According to channels analysis, domestic tourism enhances the disposable income of rural residents mainly through raising household operating income from agriculture, manufacturing, and services.