Theorizing the Dilemma: A Political Economy Approach

Abstract

The general equilibrium model illustrates that the true benefits to Macao of rapid tourism growth may be much lesser than the apparent increase in its nominal GDP after allowing for various types of side effects. It is further shown that theoretically, taxing tourism might be welfare enhancing for Macao in the broader economic, social, environmental and political context. The growth-side effects trade-off model shows that Macao should rationally choose a moderate tourism development strategy instead of a very aggressive one; this is, however, unlikely to occur because of the city’s malfunctioning democratic political system. The model that integrates foreign power into the growth-side effects model further shows that excessive tourism growth driven by foreign power has many explicit and hidden socio-political consequences that destabilize Macao society. Based on the model, the Macao government should keep sustainability in mind when making tourism policies, carefully regulating foreign capital inflow at an optimal level.