Optimality of Casino Taxation – The Case of Portugal

  • Stefan F. Schubert
  • Álvaro Matias
  • Carlos M. G. Costa
Chapter

Abstract

In Portugal, casinos are taxed at a 50% rate, and the tax receipts are allocated to “Turismo de Portugal”, which can use it in several ways, including subsidizing tourism firms and advertising. A recent study showed that casino demand in Portugal is predominantly originated in the domestic market. Hence, there is a debate about if casinos should be taxed so heavily.

This paper aims at contributing to this debate. We develop a dynamic general equilibrium model of a small open economy, comprising an industrial sector, producing an internationally traded good, a tourism sector, producing tourism services, offered both to foreign tourists and residents, and a casino sector, supplying gambling services. Domestic residents derive utility from consuming the traded good, tourism services, and gambling. We analytically derive the effects of a reduction in casino taxation and demonstrate that this is welfare improving.

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Copyright information

© Springer-Verlag Berlin Heidelberg 2011

Authors and Affiliations

  • Stefan F. Schubert
    • 1
  • Álvaro Matias
    • 2
  • Carlos M. G. Costa
    • 3
  1. 1.Competence Centre in Tourism Management and Tourism Economics (TOMTE)Free University of Bozen-Bolzano, School of Economics and ManagementBolzanoItaly
  2. 2.School of Economics and BusinessUniversidade Lusíada de LisboaLisbonPortugal
  3. 3.Estoril-Sol, Casino LisboaLisbonPortugal

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