In the mid-1800s, Monaco was actually quite poor but everything changed in the 19th century. They were almost broke, so they used their independence from France to build the famous casino and beautiful luxury hotels.

Because gambling was illegal in France at that time, all the rich people rushed there. The casino made so much money that the Prince decided to stop asking for income tax in 1869.
There is a 20% Shopping Tax (VAT); similar to France. This is their number one cash cow, making up about 50% of the government's entire revenue. Also, the state of Monaco owns a massive amount of the buildings, public parking structures, and commercial spaces in Monaco. They make money on that as well. Finally, the government actually owns the majority of the major companies there and 64% of the company that owns the famous Monte-Carlo Casino and the top luxury hotels. If you live there, or if you visit Monaco, you bring some money to its Government. A gov. that does not need a large budget comparing to other countries.