What it means
Taxes are not always paid by the people who are named in the law. When a tax raises the price of something that outsiders buy, a share of the cost falls on those outsiders, and the home taxpayers escape part of the burden.
This is why the study of who really pays a tax is a major branch of public finance. Governments like exporting because it is politically attractive.
Voters tend to accept taxes more easily when the cost lands on visitors or distant customers. A lodging levy, for example, is paid by people who cannot vote in the local election.
Typical examples include occupancy taxes on hotel rooms, car rental taxes, taxes on oil and mineral extraction, and levies on goods sold mostly to other regions. The share that can be exported depends on how easily buyers can go elsewhere.
Where the product has few substitutes, a larger share of the tax can be passed along. There are limits.
If visitors can easily choose a competing destination, a high tax will cut demand, and local businesses may lose more in sales than the tax raises. Governments therefore need to understand how price-sensitive their visitors and customers are.
Businesses should watch for this effect because it changes pricing and demand. A hotel in a heavily taxed city may need to hold its room rate down, or accept fewer bookings, to stay competitive.
Hotel and restaurant owners often lobby against increases for exactly this reason. The nuance is that who legally pays and who bears the burden can differ.
Economists call the second idea tax incidence, and it depends on how sensitive buyers and sellers are to price changes. The legal and the economic burden are often quite different, and economists look at the second.
In practice
Real-world examples.
Example
A seaside town adds a tourist levy to hotel stays. Most guests are from other regions, so the local council raises extra funds for beach maintenance without increasing residents' taxes. Hotel owners watch bookings closely for any drop. The council publishes the revenue each year so residents can see what the levy pays for.
Example
A region rich in minerals charges a tax on each tonne extracted. The metal is sold to buyers across the world, so a large part of the cost is passed on to them in the price. Local residents benefit from the revenue. If world prices fall, the region cannot pass on as much of the tax, so its budget suffers.
Example
A city with a major stadium taxes event tickets and parking. Many fans travel in from surrounding areas, so a good part of the burden falls on them. The city uses the revenue for road upgrades. Fans who choose another venue would reduce revenue, so the city watches attendance.
Formula
Calculation
Exported share = Tax paid by non-residents / Total tax collected
Suppose a city collects $2,000,000 a year from a hotel occupancy tax, and surveys show that 70% of room nights are booked by visitors from elsewhere. Tax paid by non-residents = 2,000,000 x 0.70 = $1,400,000. Exported share = 1,400,000 / 2,000,000 = 70%, so residents carry only the remaining $600,000.Case study
Seen in the real world.
Pinecrest County is an illustrative, fictional tourist destination that needed $3,000,000 a year to repair its roads. Councillors worried that a property tax rise would anger residents. Councillors liked that the cost would fall mostly on people who did not live there.
They chose a lodging tax instead, since about 75% of overnight guests came from other places. The expected export share meant residents would pay about a quarter of the cost. The county treasurer produced a forecast that showed exported and resident shares.
In this illustrative story, bookings fell slightly after the tax began, because nearby counties undercut the rates. The council still collected $2,400,000, and it later cut the tax a little to protect demand. The treasurer also began reporting the exported share each year to keep the council informed.
Watch out
Common mistakes.
- Assuming the whole tax is paid by outsiders, when sellers and local businesses often absorb part of it.
- Ignoring competition, because visitors can switch to a cheaper destination.
- Treating the legal payer as the real payer, when the economic burden may land elsewhere.
Questions
People also ask.
Is tax exporting always legal?
Generally yes within a government's powers, though some rules prevent taxes that discriminate against outsiders or burden trade between regions.
Who bears the burden of a hotel tax?
It is shared between guests, who pay higher prices, and hotels, which may lose bookings or cut rates, depending on demand.
Why do governments favour it?
Non-residents cannot vote, so the political cost of raising revenue this way is lower.
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