A Dynamic Tax Model Based on Destination Lifecycle for Sustainable Tourism Development

Abstract

This study proposes a dynamic model for identifying the optimal amount of tourism taxes at the different stages of a destination’s lifecycle. Based on the Ramsey-Cass-Koopmans model of economic growth, we reformulate the Cobb-Douglas function to incorporate new variables to estimate the optimal level of tax that could maximize the total output of the tourism industry while maintaining below the critical point of the destination’s carrying capacity. We illustrate the model with an empirical study using time series data collected from 31 administrative regions in mainland China from 2000 to 2016. The results suggest that the proposed model has satisfactory goodness of fit, and the estimated tax amount was congruent with the trends of tourism development at the destinations. The study offers practical implications for destination policymakers.