TY - JOUR
T1 - Cross-border casino competition, Externalities and Optimal Tax Policy
T2 - A Unified Theory with Quantitative Analysis
AU - Chang, Juin Jen
AU - Fiedler, Ingo
AU - Lai, Ching Chong
AU - Wang, Ping
N1 - Publisher Copyright:
© 2021 Elsevier B.V.
PY - 2021/5
Y1 - 2021/5
N2 - We develop a framework on cross-border competition in markets for goods with negative externalities and provide evidence for optimal fiscal policy with a special focus on taxation. We build the case of two bordering casinos with city governments setting taxes to maximize social welfare. Analytically, we show that cross-border casino gambling makes aggregate casino demand more elastic. By calibrating the model to fit the Detroit-Windsor market, our welfare analysis shows that cross-border competition induces both cities to lower casino taxes, while the optimal tax mix features a shift from the casino revenue tax to the good and service surcharge on gambling in Detroit but a reversed shift in Windsor. We also find a casino buy-out deal to not be credible because Windsor's willingness to pay Detroit to ban Michigan casinos is far below Detroit's willingness to accept giving up its casinos.
AB - We develop a framework on cross-border competition in markets for goods with negative externalities and provide evidence for optimal fiscal policy with a special focus on taxation. We build the case of two bordering casinos with city governments setting taxes to maximize social welfare. Analytically, we show that cross-border casino gambling makes aggregate casino demand more elastic. By calibrating the model to fit the Detroit-Windsor market, our welfare analysis shows that cross-border competition induces both cities to lower casino taxes, while the optimal tax mix features a shift from the casino revenue tax to the good and service surcharge on gambling in Detroit but a reversed shift in Windsor. We also find a casino buy-out deal to not be credible because Windsor's willingness to pay Detroit to ban Michigan casinos is far below Detroit's willingness to accept giving up its casinos.
KW - Cross-border casino competition
KW - Gambling externalities
KW - Optimal tax policy
UR - http://www.scopus.com/inward/record.url?scp=85102810373&partnerID=8YFLogxK
U2 - 10.1016/j.regsciurbeco.2021.103653
DO - 10.1016/j.regsciurbeco.2021.103653
M3 - Article
AN - SCOPUS:85102810373
SN - 0166-0462
VL - 88
JO - Regional Science and Urban Economics
JF - Regional Science and Urban Economics
M1 - 103653
ER -