Gaming industry and Pareto optimality in Italy: a comprehensive welfare analysis

In 2016 market volumes of the Italian gaming industry reached 95 billions €, including 77 billions € of winnings. Total Government revenues amounted to 10 billions €, growing by 24% with respect to 2015. Given the peculiar characteristics of gaming products and the many issues at stake (consumer protection, employment, international competition, ...), the gaming market is subject to public regulation. In order to maximize social welfare, regula- tion of the gaming market must solve a tight trade-o between government revenues, economic sustainability of providers and utility of consumers. In order to suggest a methodological approach to the solution of such a com- plex trade-o , we mapped the Italian gaming industry by means of a simpli- ed economic model that includes the main stakeholders, that is consumers (players), producers (licensed providers of gaming services) and benevolent public regulators (State or dedicated public agencies). e main result is that for the social welfare function to be maximized the price of one unit of ga- ming should be almost four times the price of one unit of consumption. Moreover, we found that an increase of the tax rates on pro ts does not a ect social welfare, while it dramatically changes its composition: Government re- venues increase and pro ts decrease proportionally; since there is no e ect on prices, consumers are indi erent. Conversely, an increase of tax rates on sales negatively a ects social welfare (in particular, if tax rate on sales is augmented above 70%) since it causes prices to increase and, in turn, purchasing power of consumers to decrease.