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The Income Elasticity of Casino Revenues: Short-Run and Long-Run Estimates

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  • Mark W. Nichols

    ()
    (Department of Economics, University of Nevada, Reno)

  • Mehmet Serkan Tosun

    ()
    (University of Nevada, Reno)

Abstract

In this paper we examine how casino gambling revenues differ from other major tax revenues in growth and variability. We estimate the long-run and short-run income elasticities using state-level casino revenue and state, regional and national income. Our empirical analysis includes eleven states that have significant casino gambling. To estimate income elasticities, we run separate time-series regressions for each of these states, controlling for supply-side industry effects. Our findings show that Nevada’s casino revenue base growth is more sensitive to national than state income, while such growth is more tied to state and regional income in riverboat states. Casino revenue base growth is generally faster than taxable sales, but slower than taxable income. Short-run (immediate) elasticity is, on average, lower than estimates for sales and income taxes, with an equal or more rapid adjustment to long-run equilibrium. These estimates also reveal greater variability when regional or national income changes are taken into consideration. This suggests that states that depend heavily on out-of-state visitors in their gambling operations may be more susceptible to changes in regional or national economic activity.

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File URL: http://www.business.unr.edu/econ/wp/papers/UNRECONWP07015.pdf
File Function: First version, 2007
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Bibliographic Info

Paper provided by University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics in its series Working Papers with number 07-015.

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Length: 30 pages
Date of creation: Dec 2007
Date of revision:
Handle: RePEc:unr:wpaper:07-015

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Keywords: Trade openness; Gambling revenues; Income elasticity;

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  1. Manishi Prasad & Peter Wahlqvist & Rich Shikiar & Ya-Chen Tina Shih, 2004. "A," PharmacoEconomics, Springer Healthcare | Adis, vol. 22(4), pages 225-244.
  2. Stock, James H & Watson, Mark W, 1993. "A Simple Estimator of Cointegrating Vectors in Higher Order Integrated Systems," Econometrica, Econometric Society, vol. 61(4), pages 783-820, July.
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  4. Sobel, Russell S. & Holcombe, Randall G., 1996. "Measuring the Growth and Variability of Tax Bases over the Business Cycle," National Tax Journal, National Tax Association, vol. 49(4), pages 535-52, December.
  5. Yasuji Otsuka & Bradley M. Braun, 1999. "The Random Coefficient Approach for Estimating Tax Revenue Stability and Growth," Public Finance Review, , vol. 27(6), pages 665-676, November.
  6. Garrett, Thomas A. & Nichols, Mark W., 2008. "Do casinos export bankruptcy?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(4), pages 1481-1494, August.
  7. Hansen, Bruce E., 1992. "Testing for parameter instability in linear models," Journal of Policy Modeling, Elsevier, vol. 14(4), pages 517-533, August.
  8. Dye, Richard F. & McGuire, Therese J., 1991. "Growth and Variability of State Individual Income and General Sales Taxes," National Tax Journal, National Tax Association, vol. 44(1), pages 55-66, March.
  9. Suits, Daniel B, 1979. "The Elasticity of Demand for Gambling," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 155-62, February.
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Cited by:
  1. Koester, Gerrit B. & Priesmeier, Christoph, 2012. "Estimating dynamic tax revenue elasticities for Germany," Discussion Papers 23/2012, Deutsche Bundesbank, Research Centre.
  2. Fricke, Hans & Süssmuth, Bernd, 2013. "Growth and volatility of tax revenues in Latin America," Working Papers 124, University of Leipzig, Faculty of Economics and Management Science.
  3. William F. Fox, 2010. "Can state and local governments rely on alternative tax sources?," Regional Economic Development, Federal Reserve Bank of St. Louis, issue Oct, pages 88-101.

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