The short-term price effect of a tourist tax through a dynamic demand model

Abstract

Tourist taxes have become an important source of revenue for many tourist destinations. Taxes on accommodation are upheld by their proponents as a way of shifting the local tax burden on to non-residents, while the travel industry claims that these levies do significant damage to their level of competitiveness. The objective of this paper is to identify the market's sensitivity to price changes in travel-related services or groups of services, assuming that one of the main factors that influences travel decisions is the information on the destination that consumers receive. In order to include this effect, the study applies a combination of a diffusion model and a traditional economic utility theory model to tourists visiting the Balearic Islands (Spain) from the United Kingdom, Germany, France and the Netherlands.