Local price variation and the tax incidence of state lotteries
This paper explores the seemingly innocuous practice of ignoring the local price vector in empirical models of lottery demand. We argue using consumer theory that local consumption prices should be included and that the failure to consider local prices results in income elasticity of lottery demand estimates that are biased downward. Using a sample of MSAs, we find that, in accordance with our theory, local prices are a significant determinant of lottery sales and the income elasticity of demand for lotteries is greater in magnitude when the local price vector is considered. The degree of lottery regressivity is thus overstated when local prices are omitted. One notable finding is that the tax incidence of lotteries changes from regressive to progressive once the local price vector is included.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.stlouisfed.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mary O. Borg & Paul M. Mason & Stephen L. Shapiro, 1993. "The Cross Effects of Lottery Taxes On Alternative State Tax Revenue," Public Finance Review, , vol. 21(2), pages 123-140, April.
- Quiggin, John, 1991. "On the Optimal Design of Lotteries," Economica, London School of Economics and Political Science, vol. 58(229), pages 1-16, February.
- Cook, Philip J & Clotfelter, Charles T, 1993.
"The Peculiar Scale Economies of Lotto,"
American Economic Review,
American Economic Association, vol. 83(3), pages 634-43, June.
- Dan Black & Natalia Kolesnikova & Lowell Taylor, 2009.
"Earnings Functions When Wages and Prices Vary by Location,"
Journal of Labor Economics,
University of Chicago Press, vol. 27(1), pages 21-47, 01.
- Dan A. Black & Natalia A. Kolesnikova & Lowell J. Taylor, 2007. "Earnings functions when wages and prices vary by location," Working Papers 2007-031, Federal Reserve Bank of St. Louis.
- Richard Cebula & Christopher Coombs, 2008. "Recent Evidence on Factors Influencing the Female Labor Force Participation Rate," Journal of Labor Research, Springer, vol. 29(3), pages 272-284, September.
- Charles T. Clotfelter & Philip J. Cook, 1989. "Selling Hope: State Lotteries in America," NBER Books, National Bureau of Economic Research, Inc, number clot89-1, December.
- Black, Dan A. & Kolesnikova, Natalia & Sanders, Seth G. & Taylor, Lowell J., 2011.
"Are Children "Normal"?,"
IZA Discussion Papers
5959, Institute for the Study of Labor (IZA).
- Jonathan Guryan & Melissa S. Kearney, 2008. "Gambling at Lucky Stores: Empirical Evidence from State Lottery Sales," American Economic Review, American Economic Association, vol. 98(1), pages 458-73, March.
- Garrett, Thomas A. & Marsh, Thomas L., 2002. "The revenue impacts of cross-border lottery shopping in the presence of spatial autocorrelation," Regional Science and Urban Economics, Elsevier, vol. 32(4), pages 501-519, July.
- Stuart Gabriel & Stuart S. Rosenthal, 2003.
"Quality of the Business Environment Versus Quality of Life: Do Firms and Households Like the Same Cities?,"
8615, USC Lusk Center for Real Estate.
- Stuart A. Gabriel & Stuart S. Rosenthal, 2004. "Quality of the Business Environment Versus Quality of Life: Do Firms and Households Like the Same Cities?," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 438-444, February.
- Kearney, Melissa Schettini, 2005.
"State lotteries and consumer behavior,"
Journal of Public Economics,
Elsevier, vol. 89(11-12), pages 2269-2299, December.
- Farrell, Lisa & Morgenroth, Edgar & Walker, Ian, 1999. " A Time Series Analysis of U.K. Lottery Sales: Long and Short Run Price Elasticities," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(4), pages 513-26, November.
- Garrett, Thomas A. & Sobel, Russell S., 1999. "Gamblers favor skewness, not risk: Further evidence from United States' lottery games," Economics Letters, Elsevier, vol. 63(1), pages 85-90, April.
- Thomas A. Garrett & Cletus C. Coughlin, 2007.
"Inter-temporal differences in the income elasticity of demand for lottery tickets,"
2007-042, Federal Reserve Bank of St. Louis.
- Garrett, Thomas A. & Coughlin, Cletus C., 2009. "Inter–temporal Differences in the Income Elasticity of Demand for Lottery Tickets," National Tax Journal, National Tax Association, vol. 62(1), pages 77-99, March.
- Tosun, Mehmet Serkan & Skidmore, Mark, 2004. "Interstate Competition and State Lottery Revenues," National Tax Journal, National Tax Association, vol. 57(2), pages 163-78, June.
- Charles T. Clotfelter & Philip J. Cook, 1987. "Implicit Taxation in Lottery Finance," NBER Working Papers 2246, National Bureau of Economic Research, Inc.
- Mikesell, John L., 1994. "State Lottery Sales and Economic Activity," National Tax Journal, National Tax Association, vol. 47(1), pages 165-71, March.
- James Alm, 2004. "Introduction," Review of Economics of the Household, Springer, vol. 2(3), pages 231-235, 09.
- Forrest, David & Gulley, O. David & Simmons, Robert, 2000. "Elasticity of Demand for UK National Lottery Tickets," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 853-64, December.
- Alm, James & McKee, Michael J. & Skidmore, Mark, 1993. "Fiscal Pressure, Tax Competition, and the Introduction of State Lotteries," National Tax Journal, National Tax Association, vol. 46(4), pages 463-76, December.
When requesting a correction, please mention this item's handle: RePEc:fip:fedlwp:2010-035. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Anna Xiao)
If references are entirely missing, you can add them using this form.