Tax incidence and price discrimination: An application of theories to gambling markets
نویسندگان
چکیده
Article history: Received 17 September 2011 Received in revised form 30 October 2013 Accepted 31 October 2013 Available online 7 November 2013 This paper examines whether a casino tax is good for local welfare in a tourism economy. We find that what is important for efficiency is not the tax rate itself but the tax incidence on tourists. Casino tourism in Macao engages in price discrimination via market segmentation. We prove that, compared with the mass market, the VIP market will grow faster with a greater price rise if a tax hike on the VIP market is not large, but will grow less rapidly with a smaller price increase if the tax hike is very large. An empirical study is carried out using data from Macao, which is typical of segmenting markets for discriminatory pricing. We show that our theory is largely consistent with observed evidence. This paper also provides some policy recommendations useful for Macao. We propose that its casino tax should be kept low at its current rate in the mass market but be raised substantially in the VIP market if its economic growth is to be made less unbalanced and more sustainable. © 2013 Elsevier Inc. All rights reserved. JEL classification: D51 F10 H21 O12
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