Specific or Ad Valorem? A Theory of Casino Taxation

Kahlil S. Philander
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Kahlil S. Philander: University of Nevada, Las Vegas, 4505 Maryland Parkway, Las Vegas, NV 89154–6107, USA

Tourism Economics, 2014, vol. 20, issue 1, 107-122

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.

Keywords: casino tax; tax theory; commodity; addiction; inelastic demand (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sae:toueco:v:20:y:2014:i:1:p:107-122

DOI: 10.5367/te.2013.0265

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