The Responsiveness of Casino Revenue to the Casino Tax Rate

Abstract

This paper examines the tax base elasticity of the regulated casino industry in Illinois to help estimate state-level revenue impacts of casino tax rate changes. Illinois’ shift to a graduated rate schedule increased the highest marginal tax rate on casino adjusted gross receipts (AGR) from 20 percent to 70 percent before reverting to a 50 percent rate. We construct a state-level casino tax rate variable, which is a statewide average for each month of the marginal casino tax rate facing each casino. We find that a 1 percent increase in this state-level casino tax rate decreases overall Illinois casino AGR by around 1.1 percent.