Party On

December 21st, 2010

Slot Machines | Photo Credit: Lisa Brewster, Flickr

Casinos are contentious.  They often pose economic problems for many communities they operate in because of increased crime and the costs of prevention; the drain on public services, such as sewers and roads; and the social concerns associated with increased compulsive gambling within the community. While proponents of casinos argue they bring a community revenue through tourism, others note there is a substitution effect, which means casino patrons (whether residents or visitors) simply decrease their spending on other goods and services.   Economic studies put this range anywhere from 100%, which indicates gambling is mostly of “convenience” by residents and likely is not a net economic benefit, to as low as 35%, which is still perhaps a sizeable effect.  On the positive side, casinos increase recreational opportunities for users, often create additional jobs and incomes, and generate some increased government revenue through taxation as casinos are often subject to a high level of taxation.

Since members of many communities find these costs of casinos to outweigh the benefits, the businesses often find themselves on the receiving end of impassioned and furious protests.  For example, the organization Casino-Free Philadelphia for years protested the opening of SugarHouse Casino on the Delaware River waterfront.  On opening day, activists gathered outside and unveiled a mural “depicting how they think the waterfront should look — without a casino. The mural was drawn by children who live in the neighborhood and included images of gardens and playgrounds.”

Online gambling tends to bypass many of the economic costs presented above.  They do not present additional costs to physical infrastructure like roads, the community is not at increased risk to compulsive gambling as there is no physical entity, and there are no concerns of increased local crime.  Of course, the positive impacts are lessened as well, as in the increase in jobs and incomes is not as significant and there is no increase in tourism.

But Gibraltar, a tax haven and also as territory of the United Kingdom, has used its low tax rates to attract a sizeable online gambling industry.  This industry now employs 12% of Gibraltar’s 19,000 person workforce.  Online companies in the tax haven currently pay a measly 1% tax, which has attracted a plethora of online gambling sites, and has furnished Gibraltar with an added $12 million in taxes, which is not insignificant to the jurisdiction’s $500 million government revenue.  The island is raising this rate to 10% to placate the EU, but the change likely won’t drive businesses away, so these government revenues may increase as much as ten-fold and the employed will retain their jobs.

Maybe you never thought I would say this, but I actually don’t see this as much of a problem.  When it comes to transparency, Gibraltar needs reform, just as many other British crown dependencies.  Spain has accused the jurisdiction of sheltering corrupt businesses, which seems likely true, and has pointed out Gibraltarian authorities do not cooperate with Spain as they should.  The 2.5 square-mile territory is the home to over 28,000 registered companies, which stinks of tax evasion and avoidance. 

But when it comes to these casinos, I don’t see a problem.  Putting the social issues associated with online gambling aside, Gibraltar is creating a competitive market for a lucrative industry that does not pose the classic externalities associated with its traditional counterpart.  It is not evading cooperation nor is it encouraging tax evasion with these entities.  I know it comes as a surprise, but party on, Gibraltar.

Written by Ann Hollingshead

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