Market structure and casino taxation in tourist resorts

Abstract

This article examines the association of tax effects with market structure for casino gaming. We show that if market structure is uncompetitive, much of casino taxation falls on tourists whose demand is inelastic relative to supply. The tax is likely to be efficient under strong external demand if imposed on oligopoly casinos with a monopoly location in a cross-border market. The likelihood of economically ‘good’ taxation is greater under oligopoly than under competition but lower than under monopoly. Casino taxes should be lowered in a more competitive market with weaker external demand. Our prediction is consistent with the evidence found from casino tourism development in Macao with ‘high’ gambling taxes.

Keywords:

• casino taxation
• market structure
• oligopoly
• efficiency
• Macao

JEL Classification:

• D51
• F10
• H21
• O12

Acknowledgement

We are grateful to an anonymous referee for valuable comments and the Editor for helpful suggestions. The usual disclaimer applies.

Funding

This article is part of the output of an academic project supported by the University of Macau [grant number MYRG081(Y3-L2)-FBA11-GXH].

Notes

¹ Various gaming taxes have been proposed in theory and implemented in practice, such as general betting duties levied as a percentage of betting stakes turnover, gross profits taxes based on net gaming revenues and other taxes imposed on gross casino revenues, annual fixed costs, casino capacity investments, player game winnings and casino offered complementarities at no or reduced prices to patrons. Besides wagering taxes, there are various sorts of other taxes and fees applied to casino activities such as an admissions tax, a licensing fee, a service fee, and so on. We cannot deal with so many tax schemes, which actually make no difference to our theoretical prediction and is also unimportant to our empirical testing for tax efficiency.

² Estimation based on quarterly data was also performed, and its results (not reported) are qualitatively similar to those reported here in Table 2 for monthly data.