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.
AguilóE.RieraA.RossellóJ. (2005), ‘The short-term price effect of a tourist tax through a dynamic demand model. The case of the Balearic Islands’, Tourism Management, Vol 26, pp 359–365.
2.
BarrosC.P. (2006), ‘Analysing the rate of technical change in the Portuguese hotel industry’, Tourism Economics, Vol 12, No 3, pp 325–346.
3.
BrauR.LanzaA.PigliaruF. (2007), ‘How fast are small tourism countries growing? Evidence from the data for 1980–2003’, Tourism Economics, Vol 13, No 4, pp 603–613.
4.
BrockW.A.TurnovskyS.J. (1981), ‘The analysis of macroeconomic policies in perfect foresight equilibrium’, International Economic Review, Vol 22, pp 179–209.
5.
BudowskiG. (1976), ‘Tourism and environmental conservation: Conflict, coexistence, or symbiosis?’, Environmental Conservation, Vol 3, No 1, pp 27–31.
6.
CandelaG.CelliniR. (2006), ‘Investment in tourism market: A dynamic model of differentiated oligopoly’, Environmental and Resource Economics, Vol 35, pp 41–58.
7.
CandelaG.FiginiP. (2003), Economia del turismo, McGraw-Hill, Milan.
8.
CandelaG.CastellaniM.DieciR. (2007), ‘Il turismo responsabile: Un'opportunità per le destinazioni turistiche e per i turisti’, Politica Economica, Vol 23, No 1, pp 83–101.
9.
CandelaG.CastellaniM.DieciR. (2008), ‘Economics of externalities and public policy’, International Economic Review, Vol 55, pp 285–311.
10.
CerinaF. (2007), ‘Tourism specialization and environmental sustainability in a dynamic economy’, Tourism Economics, Vol 13, No 4, pp 553–582.
11.
ChaoC.-C.HazariB.R.SgroP.M. (2004), ‘Tourism, globalization, social externalities, and domestic welfare’, Research in International Business and Finance, Vol 18, pp 141–149.
12.
ChaoC.-C.HazariB.R.LaffargueJ.-P.SgroP.M.YuE.S.H. (2005), ‘Tourism, jobs, capital accumulation and the economy: a dynamic analysis’, Fondazione Eni Enrico Mattei Working Paper No. 136.2005.
13.
CooperC.FletcherJ.GilbertD.ShepherdR.WanhillS. (1998), Tourism. Principles and Practice, 2nd edition, Addison Wesley Longman Publishing, New York.
14.
CushmanC.A.FieldB.C.LassD.A.StevensT.H. (2004), ‘External costs from increased island visitation: Results from the southern Thai islands’, Tourism Economics, Vol 10, No 2, pp 207–219.
15.
FariaJ.R. (2008), ‘Demographic and technological growth in the tourism market’, Tourism Economics, Vol 14, No 1, pp 115–121.
16.
FiginiP.CastellaniM.ViciL. (2007), ‘Estimating tourist externalities on residents: a choice modeling approach to the case of Rimini’, Fondazione Eni Enrico Mattei Working Paper No. 76.2007.
17.
ForsythP.DwyerL. (2002), ‘Market power and the taxation of domestic and international tourism’, Tourism Economics, Vol 8, No 4, pp 377–399.
18.
Garín-MuñosT. (2007), ‘German demand for tourism in Spain’, Tourism Management, Vol 28, pp 12–22.
19.
GómezC.M.LozanoJ.Rey-MaquieiraJ. (2008), ‘Environmental policy and long-term welfare in a tourism economy’, Spanish Economic Review, Vol 10, No 1, pp 41–62.
20.
GooroochurnN.SinclairM.T. (2005), ‘Economics of tourism taxation: Evidence from Mauritius’, Annals of Tourism Research, Vol 32, No 2, pp 478–498.
21.
HayashiF. (1982), ‘Tobin's marginal q and average q: A neoclassical interpretation’, Econometrica, Vol 50, pp 213–224.
22.
HazariB.R.SgroP.M. (2004), Tourism, Trade and National Welfare, Contributions to Economic Analysis, Elsevier, Amsterdam.
23.
LanzaA.TempleP.UrgaG. (2003), ‘The implications of tourism specialisation in the long run: An econometric analysis for 13 OECD economies’, Tourism Management, Vol 24, pp 315–321.
24.
LiuJ.C.SheldonP.J.VarT. (1987), ‘Resident perception of the environmental impacts of tourism’, Annals of Tourism Research, Vol 14, pp 17–37.
25.
NowakJ.-J.SaliM.Cortés-JiménezI. (2007), ‘Tourism, capital good imports and economic growth: Theory and evidence for Spain’, Tourism Economics, Vol 13, No 4, pp 515–536.
26.
PalmerT.RieraA. (2003), ‘Tourism and environmental taxes, with special reference to the “Balearic ecotax”’, Tourism Management, Vol 24, pp 665–674.
27.
PigaC.A.G. (2003), ‘Pigouvian taxation in tourism’, Environmental and Resource Economics, Vol 26, pp 343–359.
28.
PintassilgoP.SilvaJ. (2007), “‘Tragedy of the commons” in the tourism accomodation industry’, Tourism Economics, Vol 13, No 2, pp 209–224.
29.
SchubertS.F.BridaJ.G. (2008), ‘Dynamic effects of subsidizing the tourism sector’, Tourism Economics, Vol 14, No 1, pp 57–80.
30.
SenP. (1994), ‘Savings, investment, and the current account’, in van der PloegF., ed, The Handbook of International Macroeconomics, Chapter 15, Blackwell, Cambridge, MA, pp 506–534.
31.
TiroleJ. (1988), The Theory of Industrial Organization, MIT Press, Cambridge, MA.
32.
TurnovskyS.J. (1997), ‘Equilibrium growth in a small economy facing an imperfect world capital market’, Review of Development Economics, Vol 1, No 1, pp 1–22.
33.
TurnovskyS.J. (2000), Methods of Macroeconomic Dynamics, 2nd edition, MIT Press, Cambridge, MA.
