Wednesday, September 9, 2009

Maldives to introduce green "tax" on tourists

From Reuters: Maldives to introduce green tax on tourists

What's going on here? Is this a Pigouvian tax or something else?

Charging tourists an extra "environmental fee" in hopes of raising funds for conservation efforts (or simply for adding to general revenues) is nothing new. Examples are found all over the world.

Tourism can create significant environmental impacts and can exacerbate the depletion of natural resources. In that sense, a Pigouvian tax is an appropriate means for internalizing a negative externality.

We should also expect (following the law of demand as the supply curve shifts back) that any increase in price will decrease quantity demanded, resulting in less crowding and better environmental quality (or at least a slowed rated of environmental degradation).

The fee therefore seems like a win-win... does anyone see a down-side?

Other examples of such fees? Have they been sucessful?

3 comments:

Anonymous said...

Depending on the elasticity of the demand for tourism in the Maldives, the "Green Tax" may in fact hurt the Maldives economy. If it is elastic than the drop in the quantity demanded for toursim will decrease at a larger rate than the price will increase. This will result in a decrease in total revenue as TR=Price x Quantity. This drop could be detrimental as 1/4 of the Maldives GDP comes from tourism.
-Ryan D

Arlene said...

I agree with the introduction of "green " tax because it is a way for tourist to contribute to a country's system of protected areas. However, when the price is set, the stakeholders must take into consideration that if it is too high it might have a negative effect on number of tourist arrivals into the country.

In Belize, there is a conservation tax of $3.75 which is included in the Departure tax-$35 US. This conservation tax goes directly to the Protected Areas Conservation Trust-a non governmental organization which provides scholarsips to many Belizeans, in addition to providing financial assistance for activities related the protected areas that foster conservation, and sustainable development.

This is evidence that a "green" tax is beneficial to a country's development and protection and conservation of natural resources.

Arlene Maheia, CERMES

Anonymous said...

I don't think that the demand will decrease at a larger rate than the price will increase. In terms of the supply-demand chart, the tax would equate to a shift in the equilibrium associated with a decrease in supply. However, the revenue from the increase in price will be diverted from the current profiteers to conservation efforts (hopefully), thereby potentially harming the tourism industry by reducing the profit those companies are able to make, given the demand caused by the mandated increase in market price.