percent of the tourist tax dollars (or shekels, or any other currency) automatically goes to the Palestinian Authority’s recognized government and 60 percent to the recognized Israeli government. Government recognition could be determined by who selects the personnel in the Palestinian and Israeli delegations to the United Nations. This avoids the risk of a dispute over who constitutes the relevant government, since general diplomatic recognition is itself a contentious issue between the Israelis and Palestinians. Just who the Palestinians and Israelis “are” should be defined in terms of people residing in the area and should not include diaspora populations. To include them will result in the meaning of “Palestinian” and “Israeli” being manipulated for political and economic gain. The money distributed is then dictated by how many tourists come and how much they spend, regardless of whether they spend more or less in Israel, Palestine, or disputed territory. Furthermore, there are no restrictions on how the Israelis or Palestinians spend the money received under this program. If leaders invest this money in improving the quality of life for their people, that’s great. If they want to sock it away in a secret bank account, that is between them and their constituents. The key to success is that the money is neither given as a reward for advancing peace nor withheld as a punishment for hindering peace.
Recall the current situation. Israel expects to bring in about $4 billion in 2008 from tourism and expects, with peace, that this will grow sharply over the next several years. Based on the evidence in figure 7.1, we can estimate that tourist revenue would grow 50 percent relative to what it has been since 2001 if peace prevails. Probably Palestinians in the PA would experience an even greater increase in tourist earnings, as tourism seems to respond more sharply to violence in their region than in Israel. This is not surprising, given that they bear the brunt of the deaths. So, with peace, Israeli revenue would rise from about $4.2 billion in 2008 to (at least) $6.3 billion once a lasting peace was established. Palestinian revenue from tourism would probably increase from $300 million to (at least) $600 million, the amount they earned from tourism in 1999, the year before the second intifada began.
Current total tourist revenue with ongoing violence is reasonably estimated at $4.5 billion for Israel and the PA combined. With peace, the estimate rises to $6.9 billion. Assuming a 20 percent average tax rate on tourism earnings, this means a tax revenue pot worth $1.4 billion with peace compared to $900 million with ongoing violence.
Without a tax-sharing agreement and without peace, Israel’s tax revenue (continuing to assume a 20 percent tax take) from tourism is projected to be $840 million in 2008 or 2009, while the PA’s tax revenue from tourism is projected to be $60 million. With a 60-40 revenue sharing arrangement and peace, Israel’s tax take from tourism is projected to be at least $830 million—essentially a wash in terms of tax earnings between war and peace. The PA’s projected tax take under the proposed plan is $550 million, a more than ninefold increase, not to mention an increase in total revenue for the PA of around $1 billion, equivalent to a 20 percent increase in GDP. That’s serious economic growth!
Okay, so we’ve seen the numbers. Now let’s follow the logical stream. What we have seen is that so long as terrorist attacks or other forms of violence persist at a significant level, far fewer tourists visit Israeli-controlled or Palestinian-controlled sites. When there is significant violence, there will be little tourist income to distribute. Thus, if the Palestinian leadership does not engage in effective counterterrorism, it will get few, if any, funds. It will not be deprived of funds, as it is so often, merely because the Israelis or the international community do not like its policies. Money will not be withheld or payment made contingent on the Palestinians doing what anyone else demands. Money will flow or dry up purely because tourists abhor violence in the places they want to visit. If the Palestinians crack down on the sources of terrorism or other forms of attacks against Israel, then the decreased violence will almost surely be followed by a significant increase in tourism. If tourism increases ever so slightly more than my conservative estimates, decreased violence will mean more tax revenue for both governments.
Even with my conservative calculations, PA revenue skyrockets and the Israelis lose nothing. Similar gains can be realized if the Israelis control actions by settlers and other groups that may be inclined to foment trouble with Palestinians, leading inevitably to retaliatory strikes back and forth. The governing parties on each side should have the right incentives to prevent that result.
A failure to engage in effective counterterror or proper policing leaves the status quo in place. Successful counterterrorist policies and effective policing enrich both sides without either side’s having to cooperate directly with the other. Of course, it is likely that collaborative efforts between the intelligence services of each side would emerge to enhance the income of both. There is no mechanism in this proposal by which one side can improve these revenues without also improving the revenues flowing to the other side. That is why the plan is self-enforcing and potentially equally beneficial to both sides.
Obviously, the Israeli-Palestinian conflict is not only about their respective economies. And equally obviously, many economic incentive approaches have been proposed before, going back at least to the time of Winston Churchill. However, earlier economic schemes assumed investment strategies that required mutual coordination and cooperation, and gave the investing side—the Israelis—the ability to pull the plug if they didn’t get what they wanted. Such approaches fail to assign equal responsibility to the Palestinians and the Israelis for enforcing peace or for punishing violators of the peace. Such approaches also foster a fear of economic dependence in Palestinians employed by Israeli-funded businesses. Sharing tourist tax revenues has none of these limitations. Incentives are symmetric, and the responsibility for enforcement is also symmetric. Violations of the peace by either side mean a loss of revenue for both sides.
Not only is tourism important for the future PA economy, but the Palestinian Authority’s leaders have also shown that they can and will control threats to the peace that directly impact some forms of income. For example, in the case of the gambling casino in Jericho controlled by the Palestinians, we know that they have successfully secured the road to the casino. That road to casino riches experienced minimal security threats even at the height of the intifada. By securing the road, the Palestinians also ensured the flow of revenues from it. Additionally, we know that the least developed tourist areas in Jerusalem are in the Palestinian quarters, with a similar pattern of underdevelopment of tourist facilities throughout the Palestinian Authority’s territory and in areas in Israel dominated by Palestinian residents. With peace we can expect that international hotel chains, restaurants, boutiques, and other enterprises catering to the tourist trade will grow disproportionately in the underdeveloped areas, thereby making the tie between tourism-generated prosperity and peace all but self-funded in the mid- to long term.
Finally, sharing tourist tax revenue (recalling that what is shared will by its nature be minimal if there is no peace) will promote a “confidence building” step that requires no trust on either side. It also should promote more counterterrorism efforts from the Palestinian side and probably fewer new settlers on the Israeli side. If this revenue-sharing scheme helps pacify the area and helps promote effective counterterrorism, then the door is opened for more encompassing negotiations over fundamental issues. Terrorist movements, once destroyed, rarely reemerge. The revenue-sharing concept can be a way to move the “peace process” in a positive direction without relying on mutual trust, or even mutual contact, for the time being.
If religion truly dominates the divide between Israelis and Palestinians, as many believe, then the tourist tax plan will fail to promote peace, but it will reveal who the main impediments to peace truly are. Identifying who exactly is willing to sacrifice their own people’s economic and social well-being for religious or other reasons will make it easier to know with whom to negotiate and with whom it is a waste of time. That, in turn, can open the way for fragmenting resistance to peace and make subsequent counterterror efforts more focused and more effective. Either way, such a self-enforcing quest for peace is unlikely to make the situation worse, and has a good chance of making it better.
Some people resist ideas such as my tourist-tax plan because they are sure they can’t work. They think that the cultural divide between Israelis and Palestinians or Jews and Muslims is just too deep to respond to ordinary