The Responsiveness of Casino Revenue to the Casino Tax Rate

Abstract

This paper examines the tax base elasticity of the regulated casino industry in Illinois to help estimate state-level revenue impacts of casino tax rate changes. Illinois' shift to a graduated rate schedule increased the highest marginal tax rate on casino adjusted gross receipts (AGR) from 20 percent to 70 percent before reverting to a 50 percent rate. We construct a state-level casino tax rate variable, which is a statewide average for each month of the marginal casino tax rate facing each casino. We find that a 1 percent increase in this state-level casino tax rate decreases overall Illinois casino AGR by around 1.1 percent.

Modeling the Economic Effect of Statutory Taxation on Gaming Hospitality

“…As shown in Figure 3, although Las Vegas receives far more visitor arrivals than does Macao, tax revenue grows much faster and has become increasingly higher in Macao than in Las Vegas. Such large different performances of casino taxation can be explained using our theoretical points: (1) about 99% of Macao customers are external visitors, but gambling players account for a lower proportion (80%) of the U.S. tourist pool; (2) casino visitors stay 3.7 nights in Las Vegas on average but only 1.5 nights in Macao, so that they should be able to learn a bit more about gambling prices in Las Vegas than in Macao; (3) The magnitude of price elasticity is much higher in U.S. venues (0.75~0.90) than in Macao (0.19~0.50) since risk-loving Chinese tourists do not care much about gambling prices that are actually unobservable (Combs et al, 2016; Gu & Tam, 2014b); (4) Macao can impose a much higher tax rate (37%) than Las Vegas (8%) because external visitors absorb a far larger portion of local tax in Macao than in Las Vegas. It thus becomes clear that our theoretical predictions made earlier are consistent with the empirical evidence observed in Figure 3.…”

“…Casinos in Illinois can only increase their price by less than what is needed to fully offset a tax increase because high prices would drive away customers (causing casino revenue to drop by 0.2% due to a 1% tax rate rise). Instead, they lower operational costs by reducing the quality of services, amenities, complimentary items, and other promotional programs (Combs et al, 2016). Fortunately, this is not the case in Macao, where the gambling price can be maintained at a high level to fully offset the tax burden without fear of losing customers since they do not care much about price hikes.…”

“…The literature on gaming tourism used to be void of estimates for the price elasticity of demand for casino gambling and for elasticities of tax bases with respect to tax rates. Only three studies have recently appeared in this literature but focused only on several U.S. states with casinos (Combs et al, 2016; Landers, 2008; Thalheimer & Ali, 2003). After controlling for economic, operational, and market factors, these studies find that a 1% increase in the gaming tax rate can cause casino revenue to drop by 0.2% in Illinois or to a lesser extent in other states.…”

A Tale of Two Cities: Cross-Border Casino Competition Between Detroit and Windsor

“…SeeSuits (1979) and Combs, Landers and Spry (2013) 8. Regarding the RTP percentages, the reader can refer to the website of the Online Casino Bluebook:https://www.onlinecasinobluebook.com/education/tutorials/slots/ 9.…”

“…8 Condli¤e (2012) examines the Philadelphia-Northern Delaware-Atlantic City market empirically, revealing that the aggregate gambling revenue among the three states has not increased with the introduction of Pennsylvania gambling venues. Due to the inability to control for other changes, this counterfactual estimate may be potentially biased.…”