Tourist Tax Elasticity in Florida: Spatial Effects of County-Level Room Tax Rate Variation with brian mills

February 22, 2019

Brian Mills, Ph.D., is an Assistant Professor with the Department of Tourism, Recreation and Sport Management at the University of Florida. His research interests encompass topics such as the sports labor market, industrial organization and sports league policy (demand, competitive balance, revenue sharing, etc.), public policy and economic development related to sport, and advanced analytics in the sports business. He is especially interested in applying economic lessons and quantitative analysis to problems that sport managers face in their everyday decision making.

We examine the spatial, county-level incidence of changes to tourist tax rates in Florida from 2003 to 2014. Florida allows county-level visitor tax increments to fund various tourism-related initiatives. As a result, there is considerable variation in visitor tax rates across counties and across time. Using a dynamic spatial autoregressive panel model, we show that direct and indirect effects of room tax rate changes on taxable hotel room expenditures are relatively small and largely exported to visitors. Because these taxes have most recently been allowed for funding Major League Baseball Spring Training facilities, we also test whether these facilities impact hotel tax collections. We find no measurable effects of a small number of facility relocations on overall tourist spending in the new or previous home counties. We also discuss the importance of considering contiguous spillovers and the use of cluster-robust standard errors in panel estimation of tax incidence for tourism.

Overall, consumer responses to small changes in bed taxes were limited, with only marginal evidence of changes to consumer hotel room purchase behavior. The paper also estimates spillover effects of nearby counties with lower tax rates, finding at most small increases to hotel revenues when neighboring counties increase their bed tax. Ultimately, we find that small changes in the bed tax are not particularly harmful to the hotel sector. This information could provide additional context for the geographic variation in tax revenue elasticities estimated in the preliminary models.” For future work, Dr. Mills recommends that there is further research and testing done on the strategic tax responses.