Recently, the Dallas Cowboys constructed a new football stadium in Arlington, Te

Question

Recently, the Dallas Cowboys constructed a new football stadium in Arlington, Texas. The stadium construction is estimated to cost $1 billion dollars. To aid the Cowboys, Texas voters approved a 2% hotel occupancy tax and a 5% rental car tax, with the tax proceeds being used to offset a portion of the construction costs.

The logic behind these types of taxes is that they will be paid by out-of-towners, not local residents. Hence they are relatively popular means of financing sports stadiums. In fact, Comerica Park was financed using similar taxes. Use the concept of elasticity and tax incidence to argue that this logic is incorrect. That is, why might owners of hotels and rental car agencies (who are likely to be Texans) be opposed to these new taxes?

Explanation / Answer

This is very illogical to collect funds from public by tax (hotel occupancy tax & rental car tax) for constructing football stadium. It was very difficult for Dallas County commissioner to justify this public funding. Tax incidence is the analysis that whether the collected tax is distributed equally for the welfare program. Here in this case the tax is collected from outside residents of the town and money will be use to construct the football ground which is not ethical because distribution is not equal neither it is welfare program. Tax burden or tax incidence does not only depends on revenue, it depends on elasticity of price and elasticity of demand.

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