Skip to main content

A Trade Based View on Casino Taxation: Market Conditions


This article presents a trade based theory of casino taxation along with empirical evidence found from Macao as a typical tourism resort. We prove that there is a unique optimum gaming tax in a particular market for casino gambling, argue that any change in this tax is engendered by external demand shifts, and suggest that the economic rent from gambling legalization should be shared through such optimal tax between the public and private sectors. Our work also studies the tradeoff between economic benefits and social costs arising from casino tourism, and provides some policy recommendations for the sustainable development of gaming-led economies. The theoretical arguments in this article turn out to be consistent with empirical observations on Macao realities over the recent decade.

This is a preview of subscription content, access via your institution.

Fig. 1
Fig. 2
Fig. 3
Fig. 4
Fig. 5
Fig. 6
Fig. 7
Fig. 8
Fig. 9


  1. Social cost arising from problem gambling is divided into two parts. The first part is borne by local society as shown in Fig. 4 while the second part is exported to tourists’ home communities. Usually, the first part is much less serious than the second one, and will not be the focal point in our study. While the first part can be remedied by gaming tax financed compensation to local society, the second part, if too large, may trigger trade partners’ retaliation that in turn hurts the local economy and society very badly. Thus public policy in the casino resort must attach great importance to curbing the second part of social cost as discussed below in our paper.

  2. In Fig. 6, only the trading origin \( O_{T} \) on the left-hand side is explicitly drawn while the consumption origin \( O_{C} \) on the right-hand side is omitted to make the graph neater.

  3. Following the Chow test result, a policy dummy for the intercept or the slopes or both is supposed to be incorporated into new regressions for estimation to be more precise as done in Gu et al. (2013). However, we will not elaborate on estimation along this line since we are interested not in magnitudes of any estimates but only in their signs that are just enough to indicate the applicability of our theoretical assertions to Macao gaming realities.


  • Anderson, J. E. (2005). Casino Taxation in the United States. National Tax Journal, 58, 303–324.

    Google Scholar 

  • Benar, H., & Jenkins, G. P. (2008). The economics of Casino Taxation. Applied Economics, 40, 63–73.

    Article  Google Scholar 

  • CEW (China Economic Weekly). (2009). About 600 billion yuan each year is lost to offshore casinos around China borders. A news report, 42, November 4. Note: 6.83 yuan = USD1.

  • Christiansen, E. (2005). The impacts of gaming taxation in the U.S. Christiansen Capital Advisors LLC. American Gaming Association.

  • Duffin, A. (2007). A beautiful mind. Macau Business, Monthly Magazine, August, p. 86.

  • Gan, L., Yi, Z. Z., Jia, N., Xu, S., & Ma, S. (2012). Research report of China household finance survey 2012. Chengdu, China: Southwestern University of Finance and Economics Press.

  • Garrett, T. A., & Nichols, M. W. (2005). Do Casinos export bankruptcy? Working Paper 2005-019A, Research Division, Federal Reserve Bank of St. Louis. See the website at:

  • Gu, X. H., & Li, G. Q. (2009). Why do various gaming markets adopt different tax rates? Journal of Gambling Business and Economics, 1(3), 65–88.

    Google Scholar 

  • Gu, X. H., Li, G. Q., & Siu, R. C. S. (2012). Casino taxation in tourism resorts. Gaming Law Review and Economics, 16(5), 274–277.

    Article  Google Scholar 

  • Gu, X. H., Li, G. Q., & Tam, P. S. (2013). Casino tourism, social cost and tax effects. International Gambling Studies, 13(2), 221–239.

    Google Scholar 

  • Gu, X. H., Siu, R. C. S., & Li, G. Q. (2009). A trade based equilibrium analysis of cross-market differences in gaming taxes. In Presented at the 2009 Singapore economic review conference, Singapore, August 6–8.

  • Gu, X. H., & Tam, P. S. (2011). Casino taxation in Macao: An economic perspective. Journal of Gambling Studies, 27, 587–605.

    Article  PubMed  Google Scholar 

  • Li, G. Q., Gu, X. H., & Siu, R. C. S. (2010). The impacts of gaming expansion on economic growth: A theoretical reconsideration. Journal of Gambling Studies, 26, 269–285.

    Article  PubMed  Google Scholar 

  • Liu, X. M., & Wan, Y. K. (2011). An examination of factors that discourage slot play in Macau Casinos. International Journal of Hospitality Management, 30, 167–177.

    Article  Google Scholar 

  • Mieiro, S., Ramos, P. N., & Alves, J. (2012). Gaming tourism boom, foreign currency inflows, and dutch disease effects: An empirical model for Macau. International Journal of Trade, Economics and Finance, 3(6), 421–427.

    Google Scholar 

  • Rose, A. (1998). The regional economic impacts of Casino gambling: Assessment of the literature and establishment of a research agenda. In Research report (Nov. 5) of National Gambling Impact Study Commission, Washington, DC.

  • Salvatore, D. (2013). International economics: Trade and finance, 10th edn. New York: Wiley (Asia), Inc.

  • Siu, R. C. S. (2007). Is Casino Gaming a productive sector? A conceptual and cross-jurisdiction analysis. Journal of Gambling Business and Economics, 2, 129–146.

    Google Scholar 

  • Thompson, W. N., & Stream, C. (2006). Casino taxation and economic development: American lessons for Asian Policymakers. In Presented at the Macau conference on law, regulation and control issues of the Asian gaming industry, proceedings (pp. 39–82). Institute for the Study of Commercial Gaming, University of Macau, Macao SAR, China.

  • UMPS (2008). China takes measures to crack down on pathological gambling in Macao. United Morning Post of Singapore, July 20. See the website at:

  • Walker, D. M. (1999). Legalized Casino Gambling and export base theory of economic growth. Gaming Law Review, 2/3, 157–163.

    Article  Google Scholar 

  • Walker, D. M. (2003). Methodological issues in the social cost of gambling studies. Journal of Gambling Studies, 19, 149–184.

    Article  PubMed  Google Scholar 

  • Walker, D. M. (2007). The Economics of Casino gambling. Berlin: Springer.

    Google Scholar 

  • Walker, D. M. (2009). The economic effects of casino gambling: A perspective from the U.S. In Presented at the global gaming management seminar series, Macao Polytechnic Institute, October 23, Macao, China.

  • Wang, W. Y. (2008). The explosive growth of global gambling. China Times at Taiwan, July 15. See the website at:

Download references


We acknowledge the financial support by the University of Macau’s Research Grants Committee (under MYRG081<Y2-L2>-FBA11-GXH), the useful comments by an anonymous referee, and the excellent research assistance by Ms Sara Xiao Chang.

Author information

Authors and Affiliations


Corresponding author

Correspondence to Guoqiang Li.

Rights and permissions

Reprints and Permissions

About this article

Cite this article

Li, G., Gu, X. & Wu, J. A Trade Based View on Casino Taxation: Market Conditions. J Gambl Stud 31, 585–606 (2015).

Download citation

  • Published:

  • Issue Date:

  • DOI:


  • Optimum gaming tax
  • Trade equilibrium framework
  • Market conditions
  • Social costs