We provide novel evidence on how holiday vouchers (social vouchers that can be used to buy domestic tourist accommodation and associated services) affect the domestic tourism sector, a sector that plays an important role in the local economy of many regions. We use a policy change that made mandatory the provision of holiday vouchers for all public sector employees in Romania in 2018. Public sector employees represented 19% of all employees and, with few exceptions, had not received holiday vouchers since their introduction in 2009. Therefore, this policy change represented a major shock for the tourism sector that led to a sudden, eight-fold, increase in the value of holiday vouchers issued. We use difference-in-differences methods and data on holiday voucher payments from the three issuing units and balance sheets of the firms in the eligible sectors. Our results show that this program had large, positive effects on revenues and smaller, but statistically significant effects, on employment of the treated firms. We examine the channels through which this program increased firms’ revenues and find evidence for increases in the tourism related economic activity in the less touristic regions, increases in prices and prolongation of touristic season in the most touristic regions, and a reduction in the informal economy in the sector.

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