Incidence of the Impacts of Room Taxes on the Lodging Industry

Abstract

This article addresses the question of tax incidence or the ultimate sharing of the burden of room taxes assessed on the lodging industry between guests and the lodging industry. The study presents a new analysis of elasticity of supply of lodging services, but draws on an earlier study of elasticity of demand in making this assessment. The elasticity of supply is measured at 2.86, in comparison with - .44 elasticity of demand for lodging services. This results in tax incidence of 6.2, which means that about $6 out of $7 of the tax is ultimately paid by guests and $1 is paid indirectly by the lodging industry.