Optimal Commodity Taxation in the Presence of Tourists
This paper sets up a simple extension of the basic Ramsey model to include tourism and it provides a theoretical analysis of the efficiency, equity and disincentive of work effects of commodity taxation in the presence of tourists. Tourism is a special export commodity for which the effect of a commodity tax is a mixture of domestic and export tax effects. It is found that commodity taxation has a lower marginal excess burden with tourists than without, although this may not be the case when tourist arrival is endogenised. We also found that taxing tourism has a positive equity effect because domestic demand for tourism products is mostly from richer household groups. Finally, since tourism products are complementary to leisure, taxing tourism has also a positive disincentive of work effect.
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