In recent years, governments of developing countries have been much more active in destination management and development than they used to be in the past. However, the challenge many governments face is to determine an appropriate level of involvement. This study investigates the role government plays in tourism competitiveness by applying a panel data analysis to the Central American region. The results reveal that government plays an important role in tourism. The data provide evidence that a new theory may emerge as it pertains to tourism and developing countries. Furthermore, such discovery only reinforces the issue of free riders tourism faces and the role of ‘shadow’ economy in the Central American region.