A NOTE ON THE EFFECT OF CHANGES IN AD VALOREM TAX RATES ON NET REVENUE OF FIRMS - AN APPLICATION TO THE HOTEL ROOM TAX

This article employs comparative static analysis to derive a general e xpression for the effect of an increase in the ad valorem tar rate on a good on the net revenue of firms. The magnitude of this effect is ex pressed as a function of the initial levels of the tar rate and net re venue of taxed firms as well as the elasticities of supply and demand for the good. The authors' results applied to the hotel industry sugge st caution in relying heavily on revenues derived from hotel room tare s. increases in hotel room tar rates may have large negative effects o n the financial viability of the industry.