Market Complimentarities, Rent Extraction and Taxing of Foreign Tourists: A Model of Optimal Tourism Taxes

This paper examines the issue of taxing foreign tourists. In the spirit of conventional optimal intervention theory, a model of optimal pricing is developed by incorporating interdependencies of demand for international tourism with its counterpart international travel. The results suggest that if one ignores the interdependencies of the two sectors and prevailing market structures, the resulting pricing policies may not necessarily be optimal. Pricing strategies that ignore these interdependencies could lead to disastrous consequences

A Model of Demand for International Tourism

A demand model for international tourism based on the consumer theory of choice is developed. The model is applied to US, UK, Japan, and New Zealand demands for tourism in Australia and chosen alternative destinations. Estimated models are in conformity with the basic postulates of consumer theory, homogeneity, and symmetry. Derived elasticities reveal substantial cross-demand effects, reflecting the diversity of tourist preferences. The study has generated substantial new information on the effects and sensitivity of economic parameters on international tourism. The findings should assist in formulating broad national policy measures directed towards maintaining and enhancing relative competitiveness enjoyed by individual destinations and in developing strategic policy initiatives to maximize gains from tourism

Economics of Domestic Tourism: A Study of Australian Demand for Tourism Goods and Services

This study analyzes the economic determinants of domestic demand for tourism goods and services by Australians in a preference-consistent utility maximization framework. A system of demand equations based on the almost ideal demand system, which incorporates seasonality, is estimated using tourist consumption data collected through quarterly national visitor surveys. The system consists of five commodity aggregates: accommodation, food, transportation, shopping, and entertainment. The estimated model obeys the basic postulates of consumer theory, homogeneity, and symmetry. The results indicate that demands are price inelastic while income elasticities varied significantly in magnitude across the commodity aggregates. It was also observed that the demands for the five commodity aggregates are complementary, implying that tourists’ overall utility depends on the joint consumption of a bundle of goods and services. The observed price inelastic demand coupled with the apparent complementarity of demands across the consumption bundle may be reflective of the possibility that latent price sensitivity is associated with tourist demand

Economics of tourist's consumption behaviour: Some evidence from Australia

This study analyses the consumption behaviour of international tourists from Australia’s four major source markets: New Zealand, UK, USA and Japan. A preliminary analysis of their consumption expenditures reveals intriguing similarities as well as diversities in consumption patterns. These are sought to understand in terms of the utility-maximising framework in which observed differences in prices and incomes play a key role. Based on the neoclassical economic theory of consumer behaviour, models incorporating five major components of tourist consumption – Accommodation, Food, Transport, Shopping and Entertainment- are estimated. Overall, the level of tourist consumption is found to be highly sensitive to incomes but less sensitive to prices. The low price sensitivity suggests tourists perceive the commodities as necessities and may also reflect their captivity at the destination, masking the underlying true price sensitivities. An important dimension underlying these findings is the possible lack of information about the destination leading to sub-optimal consumption choices

Ex post demand for Australian tourism goods and services

This study examines the economic parameters underlying the ex post demand for Australian tourism goods and services from ten source markets in Asia, Europe and North America. The results suggest that demand for the five broad commodity aggregates – accommodation, food, transport, shopping and entertainment – representing the key consumption by tourists, is price-inelastic, implying that all goods are necessities from the tourist’s point of view. This result is consistent with the empirical reality that, once he or she has arrived in a destination, a tourist is bound to consume the available goods and services. A second important finding is the apparent complementarity of demands. This indicates that tourists tend to purchase a bundle of goods and services, all of which are necessary for the maximization of utility from visitation. The analysis also suggests that the underlying price elasticities exhibited through cross-price elasticity values have important implications for how price sensitivities can be better understood