Tax or Subsidy on Interregional Travel with Infectious Diseases

This paper develops a two-region model of interregional travel with infectious diseases and analyzes the optimal policy intervention. The main result is that even when infection spreads, both the restriction and promotion of travel may be optimal depending on regional asymmetry. This stems from the bidirectionality of interregional travel and the difficulty of identifying infected but asymptomatic from noninfected individuals. Numerical examples show that both taxes and subsidies on travel could be optimal in a realistic range of parameter values, although the optimal rate is small and at most approximately 50 JPY (roughly 0.5 USD) for Japan in 2020