The Taxation Effects of Tourism Under Aviation Deregulation in a Small Open Economy

In the past four years, Chinese tourists’ consumption in Taiwan has contributed to the Taiwanese economy. However, there is a limited literature documenting the actual tax effects under the aviation deregulation. Based on the models established by Leontief (1966) and Miyazawa (2002) and by adding the effective tax rate, which is employed by the Japan National Tourism Organization (2010), the present study measures the indirect tax, the personal income tax, and the corporate income tax resulting from the change in the transport policy. This allows us to get better understanding the tax effects of the change in a transport policy. The empirical results show that the total tax revenue of the aviation deregulation generated for US$1,047.3164 million, equivalent to the total tax revenue of 1.78% in 2011 in a small open economy. The indirect tax revenue, the personal income tax revenue and the corporate income tax revenue accounted for 0.76%, 0.81%, 0.21%, respectively. As for the industrial sector, the tax revenue from the service-related industry is US$939.7126 million, which accounts for up to 89.73% of the total tax revenue under the aviation deregulation.