The Economics of Taxation in Casino Tourism with Cross‐border Market Power

This paper provides a theoretical proof that casino taxation may have great potential as a contributor to tourism efficiency under sufficient market power. We also examine empirical evidence for the economic efficiency of casino tourism in Macao even with a “high” tax owing to geographic market power. Both theory and evidence point to such power as a key factor that affects the ability of a tourism resort to pass along local taxes to gambling visitors. This ability makes all the difference between the good or bad effect of casino taxes on tourism development. The policy implication is that a gaming tax should be lowered to support casino businesses if it is inefficient, but can be raised to extract public revenues if it is efficient.