Tourism Promotion, Increasing Returns and Domestic Welfare

Hui Shi and Chuhui Li

The World Economy, 2014, vol. 37, issue 7, 995-1015

Abstract: type="main" xml:id="twec12084-abs-0001">

This paper compares the effect of tourism promotion funded by commodity tax and income tax on domestic welfare in an open economy with increasing returns in the tourism and the non-tourism sector. A promotion may overcome the under-production of tourism goods through taking account of the implications of increasing returns, but at the same time, the taxation may have an adverse impact on the rest of the economy. Employing a general equilibrium analysis, we find that the cost of tourism promotion overcomes the benefit, reducing local residents' welfare. Furthermore, commodity tax on tourism consumption is relatively more efficient than income tax in a monopolistic competition, with less adverse impact on the variety of non-tourism goods. We also clarify the condition for deteriorating ‘terms of trade’, which only happens when the country has a small allocation of factor endowments.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://hdl.handle.net/10.1111/twec.2014.37.issue-7 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:37:y:2014:i:7:p:995-1015

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0378-5920

Access Statistics for this article

The World Economy is currently edited by David Greenaway

More articles in The World Economy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().