The Impact of the Hotel Room Tax: An Interrupted Time Series Approach

Abstract

Travel destinations commonly levy hotel cent. ' In August 1984, the average hotel room t=es to finance services demanded room tax rate in 45 U.S. cities with room by tourists and residents. Evidence to date taxes was about 7 percent (Mak, 1988). A on the effects of a hotel room tax has cen- similar survey of 242 U.S. visitor conven-tered on ex ante analyses of the incidence tion bureaus found that the average hotel of a hotel room tax and its effect on the room tax rate in January 1990 was nearly demand for travel and vacation goods. In 10 percent [Hiemstra and Ismail, (1990, this paper we employ interrupted time se- p. 4)]. With the enactment of a 5 percent ries analysis to estimate ex post the impact hotel room tax by the State of New York of a hotel room tax on real net hotel reu- in June 1990, New York City currently enues by analyzing that time series before has the highest hotel room occupancy taxin the U.S. at 19.25 percent plus $2 on and after the imposition of the tax, We find every room priced at $100 or more. 2that the tax had a negligible effect on real The popularity of the hotel room taxhotel revenues. stems from the widely held perception that its burden is largely borne by tourists