In this chapter, I analyze the various ways that governments tax casino gambling around the world and consider the economic effects of that taxation. In the first section, I examine the types of casinos and casino gambling that takes place along with the forms of taxation that governments apply to casino operations, including wagering taxes, admissions taxes, fees, and other taxes. In section 2 I examine the economics of casino taxation, including market analysis of a casino game, efficiency effects of casino game taxation, equity impacts or the incidence of casino taxation, and optimal government tax policy regarding casinos. Section 3 provides a summary of the forms of taxation used around the world, highlighting major gambling locations, such as Las Vegas, Macau (Macao), and Singapore, among others.
Economic Analysis of Casino Taxation
In order to analyze casino taxation, the tax base, or that which is taxed, must first be identified so that the tax rate(s) and any exemptions, deductions, or credits can be considered. For general background on economic analysis of casino gambling, see Suits (1979b), Eadington (1999), Walther (2002), Benar and Jenkins (2008), and Hoffman et al. (1999). The most common form of casino taxation around the world is a wagering tax, based on the adjusted gross receipts (AGR) collected by casinos on all forms of games that they offer (table games, roulette, slot machines, etc.).
AGR is generally defined as gross gambling receipts minus payouts for prizes. Some governments also subject the economics of casino taxation 19 casinos to admissions taxes and fees of various sorts. Admissions taxes are imposed by several states that permit casinos in the United States, as indicated in Anderson (2005), although these taxes are not frequently used in the rest of the world.
Fees are often charged to support social purposes in the jurisdictions where casinos are permitted, as in Macau, for example, where two fees are levied for social and economic purposes. 2.1 Market Analysis of a Casino Game Following the analysis in Anderson (2005), we can consider basic market analysis of a casino game.
A unique terminology is used in the world of gambling, but the economic analysis of casino game taxation is relatively straightforward. Bettors place wagers on a game, with the total amount wagered called the handle H, and the casino withholds a fraction, w, of the handle. That fraction is called the takeout rate, and it determines the price of the casino game. The total amount of prizes paid out to bettors P can be written as P = H − wH = (1 − w)H. Then, if we solve this equation for the takeout rate w, we obtain w = 1−P/H. Hence, the takeout rate is one minus the ratio of total prizes paid to bettors divided by the total amount wagered, or, the handle