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Economic Effects of Tourism Tax Changes in Australia: Empirical Evidence from a Computable General Equilibrium Model

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  • Ranjith Ihalanayake

Abstract

This paper analyses the economic effects of tourism tax changes in Australia. To this end, a tourism tax model (TTM), a computable general equilibrium (CGE) model of the Australian economy, is developed explicitly incorporating two tourism sectors. This is an important improvement in modelling tourism in a CGE context. The tourism sectors are incorporated using the ‘tourism dummy sector approach’, in which both the demand and supply sides of tourism sectors are modelled adequately to reflect the true nature of tourism. This model is used to carry out simulations of abolishing tourism taxes which are financed by an increase in the GST (goods and services tax). The simulation results suggest that the tourism sector expands as a result of tax abolition, while the other sectors contract. The increase in the GST, on the other hand, leads to an increase in commodity prices and thus the economy suffers, as reflected in a reduction in GDP. Overall, the results show that these tax changes are contractionary, as reflected in real consumption and GDP.

Suggested Citation

  • Ranjith Ihalanayake, 2012. "Economic Effects of Tourism Tax Changes in Australia: Empirical Evidence from a Computable General Equilibrium Model," Tourism Economics, , vol. 18(1), pages 181-202, February.
    • Handle: RePEc:sae:toueco:v:18:y:2012:i:1:p:181-202
    DOI: 10.5367/te.2012.0105
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    References listed on IDEAS

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    1. Philip D. Adams & Mark Horridge & Glyn Wittwer, 2003. "MMRF-GREEN: A Dynamic Multi-Regional Applied General Equilibrium Model of the Australian Economy, Based on the MMR and MONASH Models," Centre of Policy Studies/IMPACT Centre Working Papers g-140, Victoria University, Centre of Policy Studies/IMPACT Centre.
    2. Bonham, Carl & Fujii, Edwin & Im, Eric & Mak, James, 1992. "The Impact of the Hotel Room Tax: An Interrupted Time Series Approach," National Tax Journal, National Tax Association;National Tax Journal, vol. 45(4), pages 433-441, December.
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    Cited by:

    1. Ponjan, Pathomdanai & Thirawat, Nipawan, 2016. "Impacts of Thailand’s tourism tax cut: A CGE analysis," Annals of Tourism Research, Elsevier, vol. 61(C), pages 45-62.
    2. Leyi Zheng & Junfeng Liu & Qiong Yang & Yuqing Wang & Ying Liu & Xiurong Hu & Jianying Hu & Yi Wan & Xuejun Wang & Jianmin Ma & Xilong Wang & Shu Tao, 2023. "The Impacts of China’s Resident Tourism Subsidy Policy on the Economy and Air Pollution Emissions," Sustainability, MDPI, vol. 15(10), pages 1-16, May.

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