Assessing the macroeconomic impact of extending hotel height limitations

Abstract

This paper presents estimates of the macroeconomic impact of the recently revised policy framework by the Malta Environment and Planning Authority (MEPA) to facilitate the vertical extension of hotels which are rated as three-star or above by the Malta Tourism Authority (MTA). The simulations are based on the Central Bank of Malta’s structural econometric model described in Grech and Micallef (2014). Under the baseline scenario, we find that the policy has a positive effect on economic activity, with its impact on GDP being felt from 2015 onwards and stabilizing at around 0.25% in the long run. Model decomposition suggests that this effect is driven by a number of factors including the initial investment in construction, the impact on the supply potential and higher tourism exports. The policy also has positive effects on employment, income and the fiscal balance. This policy should not be assessed in isolation but rather from a holistic perspective as part of ongoing efforts by policy makers and the business community to upgrade the tourism product. Model simulations suggest that the macroeconomic impact of this policy, both in terms of output and employment, would be higher if the investment in supply infrastructure is complemented with demand-side oriented policies to address the issue of seasonality.