This article employs comparative static analysis to derive a general expresscon for Abstract the effect of an increase in the ad valorem tax rate on a good on the net revenue of
firms. The magnitude of this effect is expressed as a function of the initial levels of the
tax rate and net revenue of taxed firms as well as the elasticities of supply and
demand for the good. The authors' results applied to the hotel industry suggest
caution in relying heavily on revenues derived from hotel room taxes. Increases in
hotel room tax rates may have large negative effects on the financial viability of
the industry.
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References
1.
Bonham C., E. Fujii, E. Im, and J. Mak.1992. The impact of the hotel room tax: An interrupted time series approach. National Tax Journal45:433-41.
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Chiang, A.C.1984. Fundamental methods of mathematical economics. New York: McGraw-Hill.
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Fujii, E., M. Khaled, and J. Mak.1985. The exportability of hotel occupancy and other tourist taxes. National Tax Journal38:169-77.
