The Effect of Legalized Gambling on State Government Revenue

By Walker, Douglas M.; Jackson, John D. | Contemporary Economic Policy, January 2011 | Go to article overview

The Effect of Legalized Gambling on State Government Revenue


Walker, Douglas M., Jackson, John D., Contemporary Economic Policy


1. INTRODUCTION

Legalized gambling has become an accepted form of entertainment in the United States, with every state except Hawaii and Utah offering some form of gambling. Each gambling industry is either run by or regulated by state governments. Nominally, the primary reason for legalizing gambling--especially recently in the cases of lotteries and casinos--is to provide alternative revenue sources to those which states typically employ. Arguably, the intended effect of these new revenue sources is to increase state revenues and reduce fiscal pressure. Oddly, few researchers have attempted to analyze whether this intended effect has, in fact, been realized. This neglect raises the important empirical question: What is the relationship actually observed between legalized gambling and state government revenues? This is a critical question, especially as many states struggle to deal with increasingly serious fiscal shortfalls. The issue also has significant international importance, as casinos spread worldwide.

The proponents of legalized gambling point to total taxes paid by gambling industries as an indication of the benefits of gambling to the states. Table 1 lists government revenue by state from commercial casino taxes, lotteries, and pari-mutuel taxes for 2004.

Although the tax revenue from legalized gambling is sizable in many states, this does not necessarily mean that legalized gambling has contributed to a net increase in overall state revenues. As people spend more of their income on gambling activities, their spending on other goods and services is likely to decline. Thus, the net effect of legalized gambling on state receipts depends on complicated relationships among spending on gambling industries, spending on non-gambling industries, and the tax rates imposed on the various forms of spending. Furthermore, politicians could substitute revenues from these new gambling sources for those from existing sources, leading to an ambiguous net effect on total state revenue. Clearly, the introduction of a new good does not necessarily imply increases in government revenue will follow.

In this paper, we perform a relatively comprehensive analysis of the relationship between legalized gambling and state government revenues. We perform a panel data analysis on all 50 states for the 1985-2000 period, using annual data. We utilize data on gambling volume at casinos, Indian casinos, greyhound racing, horse racing, and lotteries; and total state government revenues net of transfers from the federal government. Our findings indicate mixed results. Lotteries and horse racing appear to have a positive impact on total state government receipts, but casinos and greyhound racing appear to have a negative effect on state revenues. Therefore, we argue that there is not a unique monotonic relationship between generic legalized gambling activity and overall state revenues. Of course, the effect of legalized gambling in a particular state or states may differ from the general effects we find.

TABLE 1
Gambling-Related State Government Revenue, 2004 (millions $) (a)

               (1)         (2) Net   (3)          (4) Total    (5) Net
               Commercial  Lottery   Pari-mutuel  Gambling     State
               Casino      Receipts  Taxes        Tax Revenue  Revenue
               Taxes       (b)                    (=1 + 2 +    (c)
                                                  3)

Alabama                 -         -          3.2          3.2   15290.8

Alaska                  -         -            -          0.0    6659.0

Arizona                 -     108.0          0.6        108.6   17171.2

Arkansas                -         -          4.6          4.6   10206.4

California              -    1045.8         42.1       1087.9  183736.7

Colorado             99.5     113.7          4.5        217.7   18550.8

Connecticut             -     283.9         10. … 

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Effect of Legalized Gambling on State Government Revenue
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.