Tourism taxes: Implications for tourism demand in the UK

Before one can understand tax implications for the tourism industry, one must understand the sensitivity of tourism demand. Using a recently developed theoretical framework, we model inbound tourism demand in the UK. The results suggest that tourism demand in the UK is very price sensitive and that measures which result in increasing tourism prices will have a significant negative impact on tourist arrivals. It is believed that a reduction in the VAT rate could boost UK's tourism sector, depending on the extent to which a decrease in taxation is passed on in the form of price reductions. The results also suggest that arrivals from neighboring countries are 98% higher than from distant origins; however, expenditure per capita of the former is 52% lower than the latter. We also found that common language between the origin and the destination increases arrivals 7% more than non-native English-speaking origins.