The effects of exchange rate, price competitiveness indices and taxation on international tourism demand in Malaysia

This study examines the effect of Malaysia’s domestic taxation policy, price and exchange competitiveness with neighboring countries on international tourism demand in Malaysia based on the quantile estimation. Using monthly-based time series data, which set over the period of 1996-2017, we adopt the bootstrap quantile regression model to provide a comprehensive relationship of international tourism demand theory in Malaysia. The empirical results show that sales tax has a negative relationship with international inbound tourism demand, mainly at the middle quantile stages. Moreover, we also found that price competition from Thailand has a positive influence on Malaysia’s tourism demand; and appreciation of Indonesia’s exchange rate competitiveness tends to lead Malaysia’s tourism demand. These empirical findings open up new insights for policymakers in Malaysia as to how to improve fiscal policies and enhance continual increase of international inbound tourism demand in the upcoming years.