ECONOMICS OF TOURISM TAXATION Evidence from Mauritius

Abstract This paper discusses the types, objectives, principles, and effects of tourism taxation. Unlike other levies, tourism taxes can increase domestic welfare since international tourists bear most of the welfare loss associated with higher revenue. Taxing products rather than tourists affects income distribution via changes in factor markets and domestic consumption, and corrects for the distortion caused by monopoly power. A computable general equilibrium analysis for Mauritius finds that taxing tourism is relatively more efficient and equitable than levying other sectors. It also finds that a narrow policy, taxing the highly tourism-intensive sectors, extracts significantly more revenue from tourists than a broader policy where all tourism-related sectors are taxed.