Coping with Externalities in Tourism - A Dynamic Optimal Taxation Approach
AbstractThe paper studies optimal taxation (subvention) when tourism is associated with „multiple externalities“, using a simple dynamic model of a small open economy, which is completely specialized 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. We show 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 that (i) the steady state of the first best optimum is reached and that (ii) the speed of convergence to steady state is socially optimal.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 16736.
Date of creation: Jul 2009
Date of revision:
tourism demand; externalities; dynamic optimal taxation;
Find related papers by 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-16 (All new papers)
- NEP-DGE-2009-08-16 (Dynamic General Equilibrium)
- NEP-PBE-2009-08-16 (Public Economics)
- NEP-TUR-2009-08-16 (Tourism Economics)
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