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Specific or Ad Valorem? A Theory of Casino Taxation

Author

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  • Kahlil S. Philander

    (University of Nevada, Las Vegas, 4505 Maryland Parkway, Las Vegas, NV 89154–6107, USA)

Abstract

This paper explores the effects of excise taxation in markets containing two consumer groups with distinct differences in demand elasticity. A model of second degree price discrimination is employed with an endogenously funded public good to represent a protected casino market with two distinct consumer groups, problem gamblers and recreational gamblers. The paper finds that, when quantity is used as the endogenous product variable, consumers tend to obtain a higher provision of the public good with specific taxes than with ad valorem taxes. The model also provides evidence that the casino gambling industry may not be a good candidate for a Pigovian tax due to the behaviour of a small group that produces negative externalities (problem gamblers) but that also tends to be more price-insensitive than the rest of the population.

Suggested Citation

  • Kahlil S. Philander, 2014. "Specific or Ad Valorem? A Theory of Casino Taxation," Tourism Economics, , vol. 20(1), pages 107-122, February.
    • Handle: RePEc:sae:toueco:v:20:y:2014:i:1:p:107-122
    DOI: 10.5367/te.2013.0265
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    References listed on IDEAS

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    1. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
    2. Martin Paldam, 2008. "The Political Economy of Regulating Gambling," Palgrave Macmillan Books, in: Matti Viren (ed.), Gaming in the New Market Environment, chapter 8, pages 184-208, Palgrave Macmillan.
    3. David Forrest, 2008. "Gambling Policy in the European Union: Too Many Losers?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(4), pages 540-569, December.
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    Cited by:

    1. Chang, Juin-Jen & Fiedler, Ingo & Lai, Ching-Chong & Wang, Ping, 2021. "Cross-border casino competition, Externalities and Optimal Tax Policy: A Unified Theory with Quantitative Analysis," Regional Science and Urban Economics, Elsevier, vol. 88(C).

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