Intervention analysis with cointegrated time series: the case of the Hawaii hotel room tax

Abstract

Abstract Tourism taxes have become an important source of revenue for many tourist destinations in the USA. Among the most widely used is the hotel room tax, levied by 47 states and many localities. Room taxes are touted by proponents as a way to shift the local tax burden to non-residents, while the travel industry claims the levies significantly harm their competitiveness. Previous studies of room tax impacts have relied on ex ante estimates of demand and supply elasticities. In this study, we analyse the effect on hotel revenues of the Hawaii room tax using time series intervention analysis. We specify a time series model of revenue behaviour that captures the long-run cointegrating relationships among revenues and important income and relative price variables, as well as other short-run dynamic influences. We estimate the effect on Hawaii hotel room revenues of the 5% Hawaii hotel room tax introduced in January 1987. We find no evidence of statistically significant tax impacts.