How to make tourism work for locals and visitors alike

The dollar is hovering near a two-decade high. That has unleashed a multitude of American tourists keen to exercise their newfound spending power, much to the dismay of snobbish Europeans and anyone who has a fondness for empty, unspoilt beaches. And it has done so at a time when tourism is back in fashion. Trips were up by 19% in the first quarter of this year, compared with a year ago. They are forecast to exceed pre-covid levels across the whole of the year.
But tourism’s revival is being met by a backlash. Popular destinations including Barcelona, Dubrovnik, Majorca and Santorini have either introduced or are considering limits on cruise ships. Japan is erecting barriers to prevent tourists gathering to gawp at Mount Fuji. Tens of thousands of protesters in Barcelona and the Balearic Islands have even called for an end to “mass tourism”.
The arguments underpinning the protests are misguided—as are many of the policies they inspire. Tourism is a useful source of revenue. Policymakers can find ways to make it more bearable and more lucrative at the same time. These do not involve bans on tourists or making destinations less attractive. Instead, countries should pursue a more capitalist solution, by exercising their pricing power.
Tourism is big business. On a broad estimate, the industry earned $3.3trn last year, equivalent to 3% of global GDP and 6% of cross-border financial flows. For host countries, it is a welcome source of jobs as well as revenue. The unemployment rates that spiked above 20% in much of southern Europe in the 2010s would have been higher still had it not been for the millions of visitors who came to soak up the sun.
The problem, though, is that individual visitors inevitably fail to take into account the effect they have on others. Congestion is a headache for residents and tourists alike. Having to compete with the crowds for flat rentals, seats on a bus and space on pavements spoils the quality of life for city residents as much as it does the holiday experience for tourists.
Taxes can help, by ensuring that tourists pay for the congestion costs they impose. In some places taxes may deter the crowds. Travellers seeking lovely beaches have lots of options, for instance. If Thailand were to make visiting more costly, tourists would go to Vietnam instead. Indeed, one study finds that every 10% increase in tourist taxes in the Maldives leads to a 5% reduction in visitor numbers.
In some places the crowds might still come. Evidence suggests that tourist taxes are mostly ineffective at dissuading people from visiting destinations with standout attractions that cannot be found elsewhere, such as Barcelona’s Sagrada Família. People respond by reallocating spending, for example by choosing a cheaper hotel, rather than cancelling trips.
However, that is not a reason for despair. For one thing, imposing much higher levies might have more of an effect on numbers. The taxes that already exist are set at paltry levels. In October Barcelona’s nightly hotel tax will increase, but only to €4 ($4.30); a day-pass to enter Venice sets you back a mere €5, which would barely cover a cup of coffee in St Mark’s Square. The market could bear much higher prices.
If visitors are willing to go elsewhere, underdeveloped tourist sites could then have a chance to attract their business. If people insist on visiting the hot spots, extra taxes levied via airlines or hotels could pay for infrastructure that makes life better for tourists and residents alike. In addition, other measures can encourage people to spend time in less congested places or neighbourhoods. As well as erecting barriers, Japanese authorities more sensibly sometimes impose a congestion charge on Mount Fuji. Copenhagen offers ice cream to tourists who do a bit of litter picking. Once the pricing is right, residents who are still grumpy or who hate crowds have the freedom to move somewhere else.
Some might object that tourist taxes are unfair, because they stop young or poor visitors from seeing the world. Yet tourism is always unequal. And passes or tax-free travel could be granted to students or unemployed people, as happens at many museums. Venetians may shake their fists when a fresh boatload of cruise passengers arrives; they should instead be rubbing their hands in glee.