Revisiting the impact of bed tax with spatial panel approach

Abstract

The recent trend of US localities on adoption and increase of hotel occupancy taxes has been well noted. While the aggregate effect of hotel occupancy tax has been frequently investigated by prior studies, less research has examined the effect of price increase on the competition between geographic submarkets. Hypothesizing that a new bed tax will lead to competitive disadvantage of a hotel group against other adjacent groups unaffected by tax, this study examines the effect of bed tax on hotel performance in the Midland-Odessa lodging market. Using a random effects spatial panel model, significant evidence of competitive disadvantage created by the adoption of bed tax for Midland hotels in 2007, and also a possibility of error in pricing strategy by these hotels are found. Implications and suggestions for practitioners are discussed with the findings of the study.