Tourist arrivals in large numbers inflict costs attributable to congestion and pollution onto host cities. Internalising these externalities is the main economic argument for a tourism levy. Therefore, an appropriate and sustainable levy, that is at least equivalent to the marginal cost, is required to compensate the host cities Under the umbrella of Complex Systems analysis, we simulate an Agent Based two-city tourism market model (ABM) to demonstrate how negative externalities can be cut without compromising aggregate income from the tourism industry. The capped arrival permit model of tourism levy outperforms the tax model by leveraging tax elasticities of tourism demand in cities. We show that the aggregate income of cities that adopt the system can be improved at a given total cost, or the total cost can be reduced while maintaining a given level of income. The objective of the paper is to help reduce negative externalities in major cities where over-tourism is a pressing issue while simultaneously improving the distribution of revenue to less frequented towns by channelling tourists through subsidies.
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