TOURISM, TAXES AND IMMISERIZATION: A TRADE THEORETIC ANALYSIS

Abstract

Abstract. Many countries promote tourism as a device for earning foreign exchange and promoting domestic welfare and growth. In all these countries the non‐traded goods (internationally not traded) are consumed by both domestic residents and tourists. It is well known that the relative price of non‐traded goods and services is determined in the local market – hence the tourist demand results in monopoly power in trade for the host country. We use a very simple two‐country model to demonstrate the specific nature of the offer curve and the trade equilibrium and the difficulties of taxation.

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