Author(s): Li Sheng (GTRC), Yanming Tsui (DECP)
Using a modified simple general equilibrium model of international trade, the theoretical construct proposed by this research note shows that taxing tourism may increase or decrease economic benefit depending on the destination's market power. Yet, from a social point of view, taxing tourism can be welfare-enhancing, as externalities of rapid tourism growth should be internalized. Therefore, a social rather than a private optimum should be pursued via taxing tourism in order to guarantee sustainable tourism. From political economy perspectives, however, the actual taxation policies may not be welfare-enhancing, as they heavily depend on the political system and power relations in the destination.