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The economics of casino taxation

Author

Listed:
  • Hasret Benar
  • Glenn Jenkins

Abstract

In this article, 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 to 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% of GDP.

Suggested Citation

  • Hasret Benar & Glenn Jenkins, 2008. "The economics of casino taxation," Applied Economics, Taylor & Francis Journals, vol. 40(1), pages 63-73.
  • Handle: RePEc:taf:applec:v:40:y:2008:i:1:p:63-73
    DOI: 10.1080/00036840600749656
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    References listed on IDEAS

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    1. Richard Thalheimer & Mukhtar Ali, 2003. "The demand for casino gaming," Applied Economics, Taylor & Francis Journals, vol. 35(8), pages 907-918.
    2. 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.
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    4. Cook, Philip J & Clotfelter, Charles T, 1993. "The Peculiar Scale Economies of Lotto," American Economic Review, American Economic Association, vol. 83(3), pages 634-643, June.
    5. William R. Eadington, 1999. "The Economics of Casino Gambling," Journal of Economic Perspectives, American Economic Association, vol. 13(3), pages 173-192, Summer.
    6. 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 296-314, June.
    7. repec:ebl:ecbull:v:8:y:2003:i:10:p:1-8 is not listed on IDEAS
    8. 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.
    9. 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.
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    Cited by:

    1. Xinhua Gu & Pui Sun Tam & Chun Kwok Lei & Xiao Chang, 2016. "The Economics of Taxation in Casino Tourism with Cross-border Market Power," Review of Development Economics, Wiley Blackwell, vol. 20(1), pages 113-125, February.
    2. Valeria De Bonis & Alessandro Gandolfo, 2013. "The Italian Model of Gambling Taxation: Fiscal Policy Guidelines for the «Sustainable Development» of an Important and Controversial Market," Economia dei Servizi, Società editrice il Mulino, issue 3, pages 239-258.
    3. Gu, Xinhua & Tam, Pui Sun, 2014. "Tax incidence and price discrimination: An application of theories to gambling markets," China Economic Review, Elsevier, vol. 28(C), pages 135-151.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H32 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Firm
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue

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