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Small State, Giant Tax Credit: Hawaii’s Leap into High Technology Development

This paper chronicles the evolution of Hawaii’s high technology tax credits, describes their provisions and the ensuing problems in attempting to ascertain whether or not they have achieved the results desired by lawmakers who passed them, and offers lessons that other states can use when designing their own business investment tax credit programs.

Published: Kato, A., S. LaCroix, J. Mak. 2009. Small State, Giant Tax Credit: Hawaii's Leap into High Technology Development. Pages 641-652 State Tax Notes. Tax Analysts, Falls Church, Virginia.

working paper version

The Contribution of the University of Hawai‘i at Manoa to Hawai‘i’s Economy in 2007

The University of Hawai‘i at Manoa (UHM) had its beginnings in 1907 as a college of agriculture and mechanical arts. In 1912, the first permanent building was erected in Manoa valley in UHM’s current location. With the establishment of the College of Arts and Sciences in 1920, the College of Hawai‘i became a university. Statehood and the establishment of the University of Hawai‘i as the "state university" marked the beginning of a period of accelerating enrollment that resulted in the formation of a large diverse system. In 1965, the State Legislature created a statewide system of community colleges and placed it within the University of Hawai‘i, and in 1972, the flagship Manoa campus became the University of Hawai‘i at Manoa.

UHero Project report

The Passenger Vessel Services Act and America’s Cruise Tourism Industry working paper

The Passenger Vessel Services Act (PVSA), a 123-year old cabotage law, attempts to shield U.S. maritime shipping from foreign competition. It also applies to the U.S. cruise ship industry. The PVSA requires foreign cruise ships that carry passengers between U.S. ports to also stop at foreign ports. Norwegian Cruise Line America (NCLA), which operates one U.S. flagged cruise ship in Hawaii, wants the U.S. Customs and Border Protection to require foreign cruise ships offering Hawaii itineraries from the U.S. west coast to spend more time in foreign ports. We analyze the merits of NCLA’s proposal. We argue that rather than making the PVSA even more protectionist, the law should be repealed.

Published: Mak, J. Sheehey, C. and Toriki, S., 2010. The passenger vessel services act and America's cruise tourism industry. Research in Transportation Economics, 26 (1), 18-26.

working paper version

Taxing Timeshare Occupancy

In this paper, we evaluate the manner in which timeshare occupancy is taxed in the State of Hawaii. Our objective is to ascertain how best to design a timeshare occupancy tax that treats all types of visitor accommodations equitably and enhances tourism’s net economic benefit to Hawaii’s residents. In particular, we address two concerns. First, what is the incidence of the timeshare occupancy tax? Second, what is its appropriate tax base? Answers to these two questions inform optimal timeshare taxation policy in Hawaii and elsewhere in the U.S.

working paper

Collusive Duopoly: The Economic Effects of Aloha and Hawaiian Airlines’ Agreement to Reduce Capacity

In the aftermath of the terrorist attacks on September 11, 2001 (9/11), Congress passed the Aviation and Transportation Security Act (ATSA). Section 116, Air Transportation Arrangements in Certain States, provided a foundation for Aloha Airlines and Hawaiian Airlines to obtain temporary antitrust immunity for their agreement to coordinate a reduction in passenger seat capacity on routes between Hawaii’s five major interisland airports. While the provision did not apply only to Hawaii, it applied only to intrastate flights, and only Hawaiian and Aloha Airlines, among U.S. airlines, took advantage of this statute to jointly reduce passenger capacity in the wake of sharply declining demand for air travel after 9/11. The limited antitrust exemption provides a rare opportunity to examine the economic effects of collusively reducing capacity in a duopolistic market. We present an economic analysis of the agreement, and advance the testable hypothesis that capacity reduction will result in fare increases. We also demonstrate empirically that reductions in passenger capacity under the agreement did contribute to sharply rising airfares in Hawaii’s interisland air travel market. Our analysis suggests that explicit agreement is more effective in reducing competition than tacit collusion in a tight oligopoly. Moreover, our empirical findings indicate that, following the expiration of the agreement, tacit collusion may have been sufficient to enable the parties to continue their supra-competitive pricing. We also document the entry of a third interisland carrier following the increase in interisland fares, and the price war that followed. Finally, our empirical results provide an economic foundation for the policy implications that we advance in our concluding section.


Published: “Collusive Duopoly: The Effects of the Aloha and Hawaiian Airlines” Agreement to Reduce Capacity,” with James Mak and Roger Blair, Antitrust Law Journal, Vol. 74, No. 2, 2007, 409-38.



Tourism’s Forward and Backward Linkages

This article proposes linkage analysis as a complement to the traditional tourism-impact analysis to examine tourism’s economic imprints on a destination’s economy. The starting point of tourism-impact analysis is final demand; impact analysis measures the direct and indirect impacts of tourist spending on the local economy. The starting point of linkage analysis is the tourism sector; the analysis examines the strengths of the inter-sectoral forward (FL) and backward (BL) relationships between the tourism sector and the nontourism industries. The FL measures the relative importance of the tourism sector as supplier to nontourism industries in the economy, whereas the BL measures its relative importance as demander. Directly applying conventional linkage analysis to tourism is not straightforward because tourism is not a defined industry. Thus, we develop a methodology to calculate tourism’s forward and backward linkages using national, regional, or local input-output tables and demonstrate its utility by applying it to Hawaii.

Published:  Cai, J., Leung, P. and Mak, J., 2006. Tourism's forward and backward linkages.  Journal of Travel Research, 45 (1), 36-52.

working paper version

The Impact of 9/11 and Other Terrible Global Events on Tourism in the United States and Hawaii

This article reviews recent trends in travel and tourism in the United States and Hawaii to ascertain how the terrorist attacks of 9/11 and subsequent terrible global events affected tourism flows. United States tourism has not recovered fully from 9/11 and other international shocks; indeed, recovery may be a long way off. By contrast, Hawaii tourism is enjoying robust growth in the aftermath of 9/11 as growth in tourist arrivals from the mainland has offset declines in international visitors. We suggest that Hawaii’s current tourism boom is explained in part by the diversion of United States travel from foreign travel. The article demonstrates the usefulness of vector error correction models to generate dynamic visitor forecasts, which we use to determine whether tourism in Hawaii has recovered fully from 9/11 and other terrible international events. The article considers policy options for facilitating the recovery of international tourism to the United States.

Published: Bonham, C., Edmonds, C. and Mak, J., 2006. The impact of 9/11 and other terrible global events on tourism in the United States and Hawaii.  Journal of Travel Research, 45 (1), 99-110.

working paper version

Impact of Population Aging on Japanese International Travel to 2025

In this article, the authors forecast Japanese international travel to 2025. In addition to the usual economic variables, their model also captures both population aging and birth cohort effects on Japanese travel abroad. They predict the number of future Japanese overseas trips for males and females separately by 5-year age groups and in 5-year increments and conclude that the Japanese will continue to travel abroad in increasing numbers but that population aging will dramatically slow the rate of growth of future Japanese overseas travel. Although the number of overseas trips taken by “seniors” is predicted to increase sharply, the authors foresee fewer trips taken by the Japanese in the 20s and early 30s age groups. Finally, they examine the responses of the industry and the public sector in Japan to implications of a rapidly aging population on future international travel.

Published:  Mak, J., Carlile, L. and Dai, S., 2005.  Impact of population aging on Japanese international travel to 2025.  Journal of Travel Research, 44 (2), 151-162.

Tourism Demand and Output in the U.S. Tourism Satellite Accounts: 1998-2003

The Bureau of Economic Analysis’s (BEA) latest estimates of the U.S. travel and tourism satellite accounts for 1998-2003 do not account for changes in the prices of travel goods and services. This brief article estimates real travel and tourism output and demand by using a travel price index computed by the Travel Industry Association of America. The article shows that after accounting for price changes, U.S. tourism output and demand in 2003 did not surpass their pre-2001 peaks, as was suggested by the BEA.

Published: Mak, J., 2005.  Tourism demand and output in the U.S. Tourism Satellite Accounts: 1998-2003.  Journal of Travel Research, 44 (1), 4-5.

Tourism and the Economy, Understanding the Economics of Tourism


Tourism and the Economy, Understanding the Economics of Tourism, James Mak, (Honolulu: University of Hawai‘i Press, 2004)


Tax Incentives in Tourism: Hawaii’s Hotel Remodeling and Construction Tax Credits

Fiscal incentives are widely used by governments around the world to attract private investment in “preferred” industries, including tourism. Incentives are often granted to offset actual or perceived differences in the cost of doing business in different political jurisdictions whether the cost differences arise from tax differences or from differences in transportation, labor, or other costs. Incentives raise the return to capital thereby making investment in a location more attractive.

working paper

Report on the Economic Impact of the University of Hawai'i System December 2000


Uhero project report

Population Aging and Japanese International Travel in the 21st Century


Published: Sakai, M., Brown, J. and Mak, J., 2000. Population aging and Japanese international travel in the 21st Century.  Journal of Travel Research, 38 (3), 212-220.

Political economy of protecting unique recreational resources: Hanauma Bay, Hawai'i


Published: Mak, J. and Moncur, J., 1998. Political economy of protecting unique recreational resources: Hanauma Bay, Hawai'i.  Ambio, 27 (3), 217-223.

Private versus Public Financing of State Destination Promotion

Until 1993 all U.S. state governments actively financed the promotion of travel to their states. In recent years, however, there has been growing public sentiment that governments should not directly engage in or fund tourism promotion. Colorado voters abolished their state's tourism board in 1993, while four other states are also looking for ways to privately fund state travel promotion. This article examines whether current efforts to induce greater private funding of destination travel promotion are likely to succeed. It is suggested that a broad-based, dedicated travel industry promotion tax is an effective way to reduce free riding by travel businesses and increase private funding of destination promotion.

Published:  Bonham, C. and Mak, J., 1996. Private versus public financing of state destination promotion.  Journal of Travel Research, 35 (2), 3-10.

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