The effect of tourism taxation on tourists’ budget allocation

Abstract

Few studies have investigated the effects of taxation on micro-level tourism demand or the composition of tourists’ budgets during a trip. This study examines the intersection of these two areas, and models the influence of the air passenger duty (APD) on the budget allocations of outbound UK tourists. The compositional data analysis (CODA) approach is used to transform trip budget shares into three log-ratios based on staged binary sequential partitions. The seemingly unrelated regression (SUR) technique is then used to analyze the effects of the APD, personal traits and trip characteristics on the log-ratios. The results demonstrate that the APD modifies the budget allocations of UK outbound tourists by increasing the relative share of transportation expenditure, while correspondingly decreasing the at-destination expenditures on items such as accommodation and food.