Aspects to justify public tourism promotion: An economic perspective

In its efforts to foster tourism development the state has the choice of either giving direct grants or stimulating specipc investments and promoting co‐operation through low‐interest loans. In either case, the effort is aimed to improve the supply and preserve the competitive capacity of destinations. Public funds also flow into national and regional tourism organisations (NTOs and RTOs) established to co‐ordinate and market tourism products and destinations. State promotion of tourism constitute an intervention in the market mechanism which needs to be expressly justified in a market economy context. Market failure, transaction costs and the growth‐stimulating effect of promoting innovation and knowledge are the fundamental conditions for state intervention (necessary conditions), even though by themselves they are not sufficient to justify intervention. This also requires a cost/benefit analysis: a state measure is advantageous only when it causes an improvement in the overall economic welfare (sufficient condition).