Dazzling cruise ships are anchored in the azure waters off the stone-walled port and tourists throng the narrow marbled alleys of this medieval city.
Dubrovnik, a fortress port in the southern Adriatic, is steadily recovering after it fell off tourists' radar screens following Croatia's 1991-95 war of independence.
Since the war, during which Yugoslav army shells slammed into the Old City, Dubrovnik has been rebuilt and its hotels restored to their former splendour, making the city Croatia's most prestigious tourist destination.
But Dubrovnik also show-cases some of the problems bedevilling the tourism industry as the grey economy, tax evasion and semi-legal hotel services nibble away at revenues. The grey economy, which illegally employs 100,000 people, is believed to suck up between 20 and 25 per cent of Croatia's tourist income.
Tourism is the main hard currency earner and, with revenues of around £4. billion (6 billion euros), it accounts for some 20 per cent of gross domestic product.
But many small private tourist businesses operate illegally.
Or, if they are formally registered, they don't declare all their guests to avoid paying taxes.
Tonci Skvrce of the Dubrovnik tourist board said: "In the summer, the behaviour of some of those who offer private accommodation is really shameful. For instance, they gather at the bus station and pull tourists' sleeves to lure them to stay in their houses.
"Their aggressive approach sometimes causes quite unpleasant situations for guests."
Analysts say the grey economy accounts for up to 15 percent of the European Union candidate country's total GDP, which grew by 4.3 percent in 2005 to 229 billion kuna (£21.7 billion) thanks to booming investment, tourism and exports.
The government has vowed to crack down on the grey economy, reintroducing financial police to control the payment of taxes and other duties.
Dubrovnik's tourist authorities are spearheading their own crackdown.
"We plan to divide private accommodation owners into six city sectors and mark them on a display at the bus station so the tourists can know who runs a legal business," Mr Skvrce said.
The display would clearly state how far from the sea each house is, so guests would not be misinformed.
It would also show which places had vacancies and would prevent hotel owners from grabbing potential guests for a face-to-face hard-sell.
"This is an original idea and we hope it will work.
"The state inspectorate and police are quite content," Mr Skvrce said.
Croatia has some 50,000 registered small private hotel-iers, each offering up to 20 beds.
Some foreigners who own houses on the Adriatic coast also offer accommodation but, according to the tourism ministry, not necessarily legally.
