Abstract
Macao’s gaming industry has experienced dramatic growth for 8 years, yet with certain social costs due to compulsive gambling.
The government has come under pressure for tax cuts even though its gaming receipts are falling relatively to the casino retained
revenue. The request for tax relief is triggered by a recent decline in net profit despite fast growing gross gaming revenue
under favorable market conditions. This is very likely caused by a substantial hike in casino operating costs due to increased
competition and might also signal the presence of the principal-agent problem. Given the regressivity of gaming tax with respect
to net profit, it is no surprise that casinos with lower profitability are more prone to seek tax cuts. The source of Macao
gaming profit hinges on three distinct factors: rising demand from China, monopoly location for casinos, and market structure
of oligopoly. These factors provide economic justifications for the current tax regime of Macao with a strong ability to pass
tax burdens on to massive visitors. The government relies on casino tax revenue to deal with gambling related problems and
promote local diversified development. Pushing for tax variability may create policy instability, business uncertainty, and
unpredictable prosperity in the long term.
The government has come under pressure for tax cuts even though its gaming receipts are falling relatively to the casino retained
revenue. The request for tax relief is triggered by a recent decline in net profit despite fast growing gross gaming revenue
under favorable market conditions. This is very likely caused by a substantial hike in casino operating costs due to increased
competition and might also signal the presence of the principal-agent problem. Given the regressivity of gaming tax with respect
to net profit, it is no surprise that casinos with lower profitability are more prone to seek tax cuts. The source of Macao
gaming profit hinges on three distinct factors: rising demand from China, monopoly location for casinos, and market structure
of oligopoly. These factors provide economic justifications for the current tax regime of Macao with a strong ability to pass
tax burdens on to massive visitors. The government relies on casino tax revenue to deal with gambling related problems and
promote local diversified development. Pushing for tax variability may create policy instability, business uncertainty, and
unpredictable prosperity in the long term.
- Content Type Journal Article
- DOI 10.1007/s10899-010-9235-8
- Authors
- Xinhua Gu, Faculty of Business Administration, University of Macau, Av. Padre Tomás Pereira, Taipa, Macau, China
- Pui Sun Tam, Faculty of Business Administration, University of Macau, Av. Padre Tomás Pereira, Taipa, Macau, China
- Journal Journal of Gambling Studies
- Online ISSN 1573-3602
- Print ISSN 1050-5350