Reference no: EM133395531

Proposal Evaluation

Assess revenue generation sources and strategies for administrative funding.

The city of Malaise is considering a 10% tax on the revenues of all hotels/motels inside the city limits. Although not completely different from hotels and motels in the nearby suburbs, the ones in Malaise have a distinct advantage in their proximity to the interesting sights and convention centers.

So, individuals will pay some premium to stay in Malaise rather than to stay nearby. Furthermore, all land is used equally well by hotels/motels and other forms of business; any Malaise land not taken by a hotel/motel is readily absorbed by other forms of business. Mayor Maladroit calls you in to advise him on the incidence of such a tax. He is particularly concerned with who will bear this tax in the short run (one month) and the long run (five years).

1. Identifies the source(s) of revenue and how the income will support the program.

2. Explain the incidence of the tax in the short and long run

3. How would your analysis change if hotels/motels in the suburbs were perfect substitutes for those in Malaise?

4. Describe what would happen to tax revenues?