Does too much tourism development really increase the size of the informal economy?

This study provides new evidence on the relationship between tourism and the informal economy using an innovative dynamic panel threshold technique. The sample consists of 117 developed and developing countries. The empirical results indicate that tourism always has a significant and negative impact on the informal economy, suggesting that tourism will always lead to a decrease in the formal economy, irrespective of how high the level of tourism development. However, panel threshold regression finds that countries with the level of tourism development passed the threshold level, tourism will have more impact on the informal economy. These findings reveal that too much tourism is not bad for informality, but instead, conducive to reduce informality.