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Coping with Externalities in Tourism: A Dynamic Optimal Taxation Approach

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  • Stefan F. Schubert

    (School of Economics and Management, Competence Centre in Tourism Management and Tourism Economics (TOMTE), Free University of Bozen-Bolzano, Piazza Università 1, I-39100 Bolzano, Italy)

Abstract

The paper studies optimal taxation (subvention) when tourism is associated with ‘multiple externalities’, using a simple dynamic model of a small open economy specializing completely in the production of tourism services and populated by a large number of intertemporally optimizing agents. Depending on the volume of tourism production, the externality can be either positive or negative. The study shows that the first best optimum, achieved by a central planner recognizing the externality, can be replicated in a decentralized economy by using a time-varying tax rate. This ensures (i) that the steady state of the first best optimum is reached and (ii) that the speed of convergence to steady state is socially optimal.

Suggested Citation

  • Stefan F. Schubert, 2010. "Coping with Externalities in Tourism: A Dynamic Optimal Taxation Approach," Tourism Economics, , vol. 16(2), pages 321-343, June.
    • Handle: RePEc:sae:toueco:v:16:y:2010:i:2:p:321-343
    DOI: 10.5367/000000010791305626
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    References listed on IDEAS

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    2. Bianca Biagi & Claudio Detotto, 2020. "Crime as Tourism Externality," Regional Studies, Taylor & Francis Journals, vol. 48(4), pages 693-709, July.
    3. Katherine M Nelson & Stefan Partelow & Moritz Stäbler & Sonya Graci & Marie Fujitani, 2021. "Tourist willingness to pay for local green hotel certification," PLOS ONE, Public Library of Science, vol. 16(2), pages 1-19, February.
    4. Vedran Recher & Ivica Rubil, 2020. "More Tourism, More Crime: Evidence from Croatia," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 147(2), pages 651-675, January.
    5. Nikeel Nishkar Kumar & Arvind Patel & Ravinay Amit Chandra & Navneet Nimesh Kumar, 2021. "Publication bias and the tourism-led growth hypothesis," PLOS ONE, Public Library of Science, vol. 16(10), pages 1-18, October.
    6. Asensi Descals-Tormo & José-Ramón Ruiz-Tamarit, 2024. "Tourist choice, competitive tourism markets and the effect of a tourist tax on producers revenues," Tourism Economics, , vol. 30(2), pages 283-300, March.
    7. Simone Marsiglio, 2017. "On the carrying capacity and the optimal number of visitors in tourism destinations," Tourism Economics, , vol. 23(3), pages 632-646, May.
    8. Antonio Marsi & Emanuela Randon, 2021. "Tourist Tax and Ratings of Online Reviews," Working Papers wp1168, Dipartimento Scienze Economiche, Universita' di Bologna.
    9. Bernini, Cristina & Pellegrini, Guido, 2013. "Is subsidising tourism firms an effective use of public funds?," Tourism Management, Elsevier, vol. 35(C), pages 156-167.
    10. Shahzad, Syed Jawad Hussain & Shahbaz, Muhammad & Ferrer, Román & Kumar, Ronald Ravinesh, 2017. "Tourism-led growth hypothesis in the top ten tourist destinations: New evidence using the quantile-on-quantile approach," Tourism Management, Elsevier, vol. 60(C), pages 223-232.
    11. Chen, Ping-ho & Lai, Ching-chong & Chu, Hsun, 2016. "Welfare effects of tourism-driven Dutch disease: The roles of international borrowings and factor intensity," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 381-394.
    12. Fotios Chatzitheodoridis & Achilleas Kontogeorgos, 2020. "Exploring of a Small-Scale Tourism Product under Economic Instability: The Case of a Greek Rural Border Area," Economies, MDPI, vol. 8(3), pages 1-20, June.

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    More about this item

    Keywords

    tourism demand; externalities; dynamic optimal taxation;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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