Tax Barometer Methodology

The WTTC Tax Barometer is designed to quantify and report the actual cost of Travel & Tourism taxes for a standardized five day, four night trip to each of 52 surveyed destinations. To provide an equal basis of comparison, the Tax Policy Center created the "WTTC Traveler" who made equivalent Travel & Tourism purchases in all 52 destinations on June 15, 1994. This approach allows the Center to standardize the basket of Travel & Tourism purchases between destinations and to isolate the tax component from the cost of the service for comparison (one destination to another and one period to the next).

To expedite the process of collecting the rate data, a combination of published information (secondary data sources) and data collected via surveys were utilized. Both surveys and secondary sources were used in establishing the base year data and reported changes for subsequent periods.

The WTTC Tax Barometer is a form of aggregate index known as a Laspeyres index, which freezes the consumption pattern at a particular point in time. In order to isolate the effects of changes in taxes, the WTTC Tax Barometer freezes both costs (and quantity consumed) at 1994 levels. This is accomplished by calculating a base year index that separates the tax amount from the purchase price.

The WTTC Traveler created for the Tax Barometer is an international traveler, arriving at and departing from one of the 52 cities surveyed. While in the city, the traveler spends four nights in a hotel, rents a car for five days and consumes twelve full meals.

The index was configured to establish a baseline cost of the products/services to which the tax rates would then be applied. To isolate changes in tax rates, the price, quantity and type of goods purchased will be fixed from one period to another.

Indices like the WTTC Tax Barometer were once the domain of economists and fiscal policy analysts and can be somewhat difficult to understand. Now, most commercial sectors routinely use indices to monitor market conditions. For example, if the Consumer Confidence Index is high, businesses and governments can organize or plan programs which capitalize on the positive trend. Likewise, if Consumer Confidence is low, businesses and governments can make alternative plans to dampen the effects of lower purchasing.

Indices are particularly useful for monitoring changes over time. For our purposes, by holding prices and quantities of goods and services purchased constant, the effects of taxes are singles out. Similar to the U.S. Consumer Confidence Index and other international price indexes, the Tax Barometer will be sensitive to changes in rates and will illustrate how destination cities relate to each other over time.