The effect of hotel taxes on the hotel industry in the Dallas-Fort Worth Metroplex

When determining the means by which to finance the operations of a local government, officials must choose methods that are appropriate to the tax base and do not place too large a burden on the population. One method that seems favorable from this standpoint is the hotel occupancy tax because it is supposed to fall on non-residents. There is some question, however, about whether such a tax might have a negative impact for localities that boast a large tourism industry. To date, most of the literature dealing with hotel taxes and their effect on the lodging industry is focused on the effect of the tax on resort hotels. A second group of hotels that have not been studied as thoroughly are hotels that exist in an area where there are many separate taxing jurisdictions that are adjacent to each other. Hotels in such an area may be faced with different tax rates depending on which jurisdiction they belong to. This thesis seeks to determine whether imposing a hotel tax in such an area would be detrimental to the lodging industry in the jurisdictions with a higher tax. To do this, the hotel industry in the Dallas-Fort Worth Metroplex is analyzed using two-stage least squares and fixed effects models to determine the elasticity of demand for hotel rooms. Although there are some issues with the data that is available for use, the results indicate that imposing a tax on hotel rooms does not have a significant impact on the industry.