Does an increase in subsidies lead to changes air fares? Empirical evidence from Spain

Abstract

This paper examines the impact on prices of various regulatory changes in residents' flight subsidies implemented in Spain in recent years. It draws on a large sample of domestic routes for the period 2003-2013 to estimate a price equation that accounts for the panel data and the potential endogeneity of specific explanatory variables. Price differences were not found between the treated routes (routes affected by the discounts) and the control routes (routes not affected by the discounts). This is the case regardless of the discount percentage on prices that island residents enjoy.