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The Economics of Casino Taxation

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  • Hasret Benar

    ()
    (Department of Economics, Eastern Mediterranean University)

  • Glenn P. Jenkins

    ()
    (Department of Economics, Queen's University)

Abstract

In this paper, a model of the costs of a casino is developed that focuses on the implications for economic welfare of different taxation schemes for casinos. The situation being considered is in a country where casinos cater exclusively to foreign tourists. The goal of the country is to determine the maximum amount of taxes that can be extracted from the activities of this sector under different systems of taxation. When the price of gambling is set by regulation above its competitive level, the economic losses created by excessive investment in the sector can be reduced by taxation. A turnover tax on the amount gambled can maximize both tax revenue and the economic welfare of the country. Due administrative constraints, a number of countries rely on the taxation of the casinos’ fixed assets or a combination of a turnover tax and a tax on fixed costs. The model is applied to the situation in North Cyprus. The annual economic efficiency loss from its poorly designed tax policies on casino gambling is estimated to be about 0.5 percent of GDP.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1057.pdf
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Bibliographic Info

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1057.

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Length: 29 pages
Date of creation: Apr 2006
Date of revision:
Publication status: Published in Applied Economics, April 8, 2006
Handle: RePEc:qed:wpaper:1057

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Keywords: Casino; taxation; gambling; tourism; economic benefit;

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References

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  1. David Paton & Donald S. Siegel & Leighton Vaughan Williams, 2003. "Taxation and the Demand for Gambling: New Evidence from the United Kingdom," Rensselaer Working Papers in Economics 0306, Rensselaer Polytechnic Institute, Department of Economics.
  2. Philip J. Cook & Charles T. Clotfelter, 1991. "The Peculiar Scale Economies of Lotto," NBER Working Papers 3766, National Bureau of Economic Research, Inc.
  3. repec:ebl:ecbull:v:8:y:2003:i:10:p:1-8 is not listed on IDEAS
  4. David Paton & Donald S. Siegel & Leighton Vaughan Williams, 2001. "Gambling Taxation: A Comment," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 34(4), pages 437-440.
  5. Richard Thalheimer & Mukhtar Ali, 2003. "The demand for casino gaming," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 907-918.
  6. N. Gregory Mankiw & Michael D. Whinston, 1986. "Free Entry and Social Inefficiency," RAND Journal of Economics, The RAND Corporation, vol. 17(1), pages 48-58, Spring.
  7. William R. Eadington, 1999. "The Economics of Casino Gambling," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 173-192, Summer.
  8. David Paton & Donald S. Siegel & Leighton Vaughan Williams, 2002. "A Policy Response To The E--Commerce Revolution: The Case Of Betting Taxation In The UK," Economic Journal, Royal Economic Society, vol. 112(480), pages F296-F314, June.
  9. Julie Smith, 2000. "Gambling Taxation: Public Equity in the Gambling Business," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 33(2), pages 120-144.
  10. Clotfelter, Charles T & Cook, Philip J, 1990. "On the Economics of State Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 105-19, Fall.
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Cited by:
  1. Alessandro Gandolfo & Valeria De Bonis, 2013. "The Italian model of gambling taxation: fiscal policy guidelines for the "sustainable development" of an important and controversial market," Discussion Papers 2013/173, Dipartimento di Economia e Management (DEM), University of Pisa, Pisa, Italy.

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