Tourism Taxation and Environmental Quality in a Model with Vertical Differentiation

Brida, Juan Gabriel and Pereyra, Juan S. (2008): Tourism Taxation and Environmental Quality in a Model with Vertical Differentiation. Published in: TOURISMOS: An International Multidisciplinary Journal of Tourism , Vol. 4, No. 1 (April 2009): pp. 45-62.

Abstract

The environmental quality of destination has become a tool that hotels have to hold the tourism demand. In this paper we are going to present a model of vertical differentiation in the accommodation industry, where differentiation is associated with quality. Additionally, we assume the existence of a lump sum tax in the accommodation industry. Two are the main results which will be proved in this article; first, if the tourist's willingness to pay for quality increases then both the demand and the price for tourism services increase as a result. However, the increment of the demand for best environmental quality gets higher, and therefore, the environmental quality level of tourism services, that the destination offers, decreases. Second, an increase in the value of the tourism tax leads to an increase in the total environmental quality of the destination.

• Item Type: MPRA Paper
• Language: English
• Keywords: duopoly, tourism demand, hotel service quality, environment
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M1 - Business Administration; L - Industrial Organization > L8 - Industry Studies: Services > L83 - Sports ; Gambling ; Restaurants ; Recreation ; Tourism

References

Accinelli, E., Brida J.G., Carrera, E. & Pereyra, J.S. (2007). The effects on environmental investment of changes in tourism demand. TOURISMOS: An International Multidisciplinary Journal of Tourism, Vol. 2, No.2, pp.129-140.

Aguiló, E., Riera, A. & Rosseló, J. (2005). The short-term price effect of a tourist tax through a dynamic demand model. The case of Balearic Islands. Tourism Management, Vol. 26, No.3, pp.359-365.

Arbel, A. & Ravid, S. (1983). An industry energy price impact model: the case of the hotel industry. Applied Economics, Vol. 15, pp.705-714.

Bonano, G. (1986). Vertical differentiation with Cournot Competition. Economic Notes, Vol. 15, pp. 68-91.

Bonham, C. & Gangnes, B. (1996). Intervention analysis with cointegrated time series: the case of Hawaii hotel room tax. Applied Economics, Vol. 28, pp.1281-1293.

Brida, J.G. & Pereyra, J.S. (2008a). Tourism demand and environmental investment: a model with three tourist regions. Brazilian Journal of Business Economics, Vol. 7, No 1, pp. 31-36.

Brida, J.G. & Pereyra, J.S. (2008b). Investment on environmental quality of a tourist region: an economic model with vertical differentiation and externalities. Anatolia: an International Journal of Tourism and Hospitality Research, Vol. 19, No.2.

Calveras, A. (2003). Incentives of international and local hotel chains to invest in environmental quality. Tourism Economics, Vol. 9, No.3, pp.297-306.

Clewer, A. (1992). Price competitiveness and inclusive tour holidays on European cities. In P. Johnson and B. Thomas (Eds). Choice and Demand in Tourism, London: Mansell.

Cremer, H. & Thisse, J.F. (1991). Location models of horizontal differentiation: a special case of vertical differentiation models. The Journal of Industrial Economics; Vol. 39, No.4, pp.383 - 390.

Fick, G. & Ritchie, J.R. (1991). Measuring services quality in the travel and touristy industry. Journal of Travel Research, Vol. 30, No.2, pp.2-9.

Fujii, E., Khaled, M. & Mak, J. (1985). The exportability of hotel occupancy and other tourist taxes. National Tax Journal, Vol. 38, pp.169-177.

Gabszewick, J. & Thisse, J (1979). Price competition, quality and income disparities. Journal of Economic Theory, Vol. 20, pp.327-338.

García, D. & Tugores, M. (2006). Optimal choice of quality in hotel services. Annals of Tourism Research, Vol. 33, No.2, pp.456-469.

González, M. & León, C. (2001). The adoption of environmental innovations in the hotel industry of Gran Canaria. Tourism Economics, Vol. 7, No.2, pp.177-190.

Gooroochurn, N. & Sinclair, T. (2005). Economics of tourism taxation. Evidence from Mauritius. Annals of Tourism Research, Vol. 32, No.2, pp.478-498.

Himiestra, S. & Ismail, J. (1992). Analysis of room taxes levied on the lodging industry. Journal of Travel Research, Vol. 31, No.1, pp.42-49.

Huybers, T. & Bennet, J. (2000). Impact of the environmental on holiday destination choices of prospective UK tourists; implications for Tropical North Queensland. Tourism Economics, Vol. 6, No.1, pp.31-46.

Jensen, T. & Wanhill, S. (2002). Tourism's taxing times: value added in Europe and Denmark. Tourism Management, Vol. 23, pp.67-69.

Keane, M. (1997). Quality and pricing tourism in destinations. Annals of Tourism Research, Vol. 24, No.1, pp.117-130.

Palmer, T. & Riera, A. (2003). Tourism and environmental taxes. With special reference to the “Balearic ecotax”. Tourism Management, Vol. 24, No.6, pp.665-674.

Pintassilgo, P. & Silva, J. (2007). “The tragedy of commons” in the tourism accommodation industry. Tourism Economics, Vol. 13, No.2, pp.209-224.

Sinclair, M. & Stabler, M. (1997). The Economics of Tourism. Routledge, London.

Tirole, J. (1988). The theory of industrial organization. MIT Press, Cambridge.

UNWTO. (2007). World Tourism Barometer. Vol. 5, No.2.

Warnken, J., Bradley, M. & Guilding, C. (2004). Exploring methods and practicalities of conducting sector-wide energy consumption accounting in the tourist accommodation industry. Ecological Economics, Vol. 48, pp.125-141.

Wauthy, X. (1996). Quality Choice in models of vertical differentiation. The Journal of Industrial Economics, Vol. XLIV, No.3.