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Congestion Externalities of Tourism, Dutch Disease and Optimal Taxation: Macroeconomic Implications




This article develops a dynamic optimising macro model that sheds light on two tourism stylised facts, namely, (i) the congestion externalities caused by tourism expansion and (ii) the wealth effect generated by the revenues from overseas tourism taxation. Based on the two salient characteristics, our positive analysis indicates that if tourism tax revenues are used to provide rebates to local residents, because of the wealth effect, Dutch disease cannot be cured by the consumption tax on tourists. In contrast, if tourism tax revenues are used to provide productive government services for the manufacturing sector, Dutch disease can be treated effectively by taxation tailored for tourism. In a normative analysis, we show that to simultaneously correct the distortion caused by the congestion externality of tourism and generate the revenues from overseas tourism taxation, a government should not only levy a general tax on tourism consumption, but it should also discriminate between domestic and overseas tourism consumption, so that a positive tax surcharge is imposed on foreign tourists. In addition, the key factors that govern the optimal rates of a general tax and tax surcharge are also examined in this article.

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  • Juin‐Jen Chang & Lee‐Jung Lu & Shih‐Wen Hu, 2011. "Congestion Externalities of Tourism, Dutch Disease and Optimal Taxation: Macroeconomic Implications," The Economic Record, The Economic Society of Australia, vol. 87(276), pages 90-108, March.
  • Handle: RePEc:bla:ecorec:v:87:y:2011:i:276:p:90-108

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    1. repec:hal:journl:halshs-00645346 is not listed on IDEAS
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    Cited by:

    1. 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.
    2. Ratbek Dzhumashev & Jaai Parasnis, 2011. "Taxation and Migration: Policies to Manage a Resource Boom," Monash Economics Working Papers 33-11, Monash University, Department of Economics.
    3. Shi, Hui, 2012. "The efficiency of government promotion of inbound tourism: The case of Australia," Economic Modelling, Elsevier, vol. 29(6), pages 2711-2718.

    More about this item


    E60 ; H20 ;

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General


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