IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/15713.html
   My bibliography  Save this paper

Spatial Competition and Cross-border Shopping: Evidence from State Lotteries

Author

Listed:
  • Brian G. Knight
  • Nathan Schiff

Abstract

This paper investigates competition between jurisdictions in the context of cross-border shopping for state lottery tickets. We first develop a simple theoretical model in which consumers choose between state lotteries and face a trade-off between travel costs and the price of a fair gamble, which is declining in the size of the jackpot and the odds of winning. Given this trade-off, the model predicts that per-resident sales should be more responsive to prices in small states with densely populated borders, relative to large states with sparsely populated borders. Our empirical analysis focuses on the multi-state games of Powerball and Mega Millions, and the identification strategy is based upon high-frequency variation in prices due to the rollover feature of lottery jackpots. The empirical results support the predictions of the model. The magnitude of these effects is large, suggesting that states do face competitive pressures from neighboring lotteries, but the effects vary significantly across states.

Suggested Citation

  • Brian G. Knight & Nathan Schiff, 2010. "Spatial Competition and Cross-border Shopping: Evidence from State Lotteries," NBER Working Papers 15713, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15713
    Note: PE POL
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w15713.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lovenheim, Michael F., 2008. "How Far to the Border?: The Extent and Impact of Cross-Border Casual Cigarette Smuggling," National Tax Journal, National Tax Association;National Tax Journal, vol. 61(1), pages 7-33, March.
    2. 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.
    3. Oster, Emily, 2004. "Are All Lotteries Regressive? Evidence From the Powerball," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 179-187, June.
    4. Melissa S. Kearney, 2005. "The Economic Winners and Losers of Legalized Gambling," NBER Working Papers 11234, National Bureau of Economic Research, Inc.
    5. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, The RAND Corporation, vol. 37(4), pages 964-982, December.
    6. Asplund, Marcus & Friberg, Richard & Wilander, Fredrik, 2007. "Demand and distance: Evidence on cross-border shopping," Journal of Public Economics, Elsevier, vol. 91(1-2), pages 141-157, February.
    7. Kearney, Melissa Schettini, 2005. "State lotteries and consumer behavior," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2269-2299, December.
    8. Mark Edward Stover, 1990. "Contiguous state lotteries: Substitutes or complements?," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 9(4), pages 565-568.
    9. Charles M. Tiebout, 1956. "A Pure Theory of Local Expenditures," Journal of Political Economy, University of Chicago Press, vol. 64(5), pages 416-416.
    10. Brennan,Geoffrey & Buchanan,James M., 2006. "The Power to Tax," Cambridge Books, Cambridge University Press, number 9780521027922, November.
    11. Clotfelter, Charles T & Cook, Philip J, 1990. "On the Economics of State Lotteries," Journal of Economic Perspectives, American Economic Association, vol. 4(4), pages 105-119, Fall.
    12. Brown, Ryan P. & Rork, Jonathan C., 2005. "Copycat gaming: A spatial analysis of state lottery structure," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 795-807, November.
    13. Case, Anne C. & Rosen, Harvey S. & Hines, James Jr., 1993. "Budget spillovers and fiscal policy interdependence : Evidence from the states," Journal of Public Economics, Elsevier, vol. 52(3), pages 285-307, October.
    14. 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 458-473, March.
    15. Doyle Jr., Joseph J. & Samphantharak, Krislert, 2008. "$2.00 Gas! Studying the effects of a gas tax moratorium," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 869-884, April.
    16. Jan K. Brueckner, 2003. "Strategic Interaction Among Governments: An Overview of Empirical Studies," International Regional Science Review, , vol. 26(2), pages 175-188, April.
    17. Peter Davis, 2006. "Spatial competition in retail markets: movie theaters," RAND Journal of Economics, RAND Corporation, vol. 37(4), pages 964-982, December.
    18. Besley, Timothy & Case, Anne, 1995. "Incumbent Behavior: Vote-Seeking, Tax-Setting, and Yardstick Competition," American Economic Review, American Economic Association, vol. 85(1), pages 25-45, March.
    19. Kearney, Melissa Schettini, 2005. "The Economic Winners and Losers of Legalized Gambling," National Tax Journal, National Tax Association;National Tax Journal, vol. 58(2), pages 281-302, June.
    20. Cook, Philip J & Clotfelter, Charles T, 1993. "The Peculiar Scale Economies of Lotto," American Economic Review, American Economic Association, vol. 83(3), pages 634-643, June.
    21. Tosun, Mehmet Serkan & Skidmore, Mark, 2004. "Interstate Competition and State Lottery Revenues," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(2), pages 163-178, June.
    22. Brueckner, Jan K. & Saavedra, Luz A., 2001. "Do Local Governments Engage in Strategic Property-Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 54(2), pages 203-230, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Brian Knight, 2013. "State Gun Policy and Cross-State Externalities: Evidence from Crime Gun Tracing," American Economic Journal: Economic Policy, American Economic Association, vol. 5(4), pages 200-229, November.
    2. Lee, Hanbin & Sexton, Richard J. & Sumner, Daniel A., 2021. "Economics of Mandates on Farm Practices: Lessons from California’s Proposition 12 Regulations on Pork Sold in California," 2021 Annual Meeting, August 1-3, Austin, Texas 313920, Agricultural and Applied Economics Association.
    3. Agrawal, David R., 2014. "LOST in America: Evidence on local sales taxes from national panel data," Regional Science and Urban Economics, Elsevier, vol. 49(C), pages 147-163.
    4. Kathryn L. Combs & John A. Spry, 2019. "The Effects Of Lotto Game Changes And Large Jackpots On Income Elasticities And Sales," Contemporary Economic Policy, Western Economic Association International, vol. 37(2), pages 261-273, April.
    5. Head, Keith & , & Tappata, Mariano, 2012. "Consumer Arbitrage Across a Porous Border," CEPR Discussion Papers 8730, C.E.P.R. Discussion Papers.
    6. Luke P. Rodgers, 2020. "Don’t Tax My Dreams: The Lottery Sales Response to Gambling Tax Changes," Public Finance Review, , vol. 48(5), pages 627-649, September.
    7. Orrin David Gulley, 2018. "The optimal structure of lotto games," Economics and Business Letters, Oviedo University Press, vol. 7(4), pages 156-161.
    8. Agrawal, David R. & Trandel, Gregory A., 2019. "Dynamics of policy adoption with state dependence," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    9. Fr d ric Kluser, 2023. "Cross-Border Shopping: Evidence from Household Transaction Records," Diskussionsschriften credresearchpaper42, Universitaet Bern, Departement Volkswirtschaft - CRED.
    10. Cohen, Alex & Keiser, David A., 2017. "The effectiveness of incomplete and overlapping pollution regulation: Evidence from bans on phosphate in automatic dishwasher detergent," Journal of Public Economics, Elsevier, vol. 150(C), pages 53-74.
    11. Andrés Leal & Julio López-Laborda & Fernando Rodrigo, 2014. "The Inside and Outside Revenue Impact of Regional Gambling Taxes in Spain," Growth and Change, Wiley Blackwell, vol. 45(1), pages 79-97, March.
    12. Marcelo Castro & Enlinson Mattos, 2021. "Measuring Fiscal Spillovers in Brazilian Municipalities," Public Finance Review, , vol. 49(2), pages 221-261, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Agrawal, David R. & Trandel, Gregory A., 2019. "Dynamics of policy adoption with state dependence," Regional Science and Urban Economics, Elsevier, vol. 79(C).
    2. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers 1110, College of the Holy Cross, Department of Economics.
    3. Lars P. Feld, 2006. "Regulatory Competition and Federalism in Switzerland: Diffusion by Horizontal and Vertical Interaction," CREMA Working Paper Series 2006-22, Center for Research in Economics, Management and the Arts (CREMA).
    4. Brown, Ryan P. & Rork, Jonathan C., 2005. "Copycat gaming: A spatial analysis of state lottery structure," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 795-807, November.
    5. Humphreys, Brad & Perez, Levi, 2011. "Lottery Participants and Revenues: An International Survey of Economic Research on Lotteries," Working Papers 2011-17, University of Alberta, Department of Economics.
    6. Thomas A. Garrett & Natalia A. Kolesnikova, 2010. "Local price variation and the tax incidence of state lotteries," Working Papers 2010-035, Federal Reserve Bank of St. Louis.
    7. Baskaran, Thushyanthan, 2013. "Identifying local tax mimicking: Administrative borders and a policy reform," University of Göttingen Working Papers in Economics 157, University of Goettingen, Department of Economics.
    8. Thomas A. Garrett, 2011. "A closer look at the tax incidence of instant lottery games: an analysis by price point," Working Papers 2011-010, Federal Reserve Bank of St. Louis.
    9. Baskaran, Thushyanthan, 2014. "Identifying local tax mimicking with administrative borders and a policy reform," Journal of Public Economics, Elsevier, vol. 118(C), pages 41-51.
    10. Sandy Fréret & Denis Maguain, 2017. "The effects of agglomeration on tax competition: evidence from a two-regime spatial panel model on French data," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 24(6), pages 1100-1140, December.
    11. Maria Elkhdari (a), Samira Oukarfi (b), Samir Zine El Alaoui (b) and Youness Sahibi (c), 2021. "Are Strategic Interactions between Moroccan Local Governments Geographical or Political?," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 46(1), pages 33-52, March.
    12. Małkowska, Agnieszka & Telega, Agnieszka & Głuszak, Michał & Marona, Bartłomiej, 2021. "Spatial diversification of property tax policy – Searching for yardstick competition in Polish metropolitan areas," Land Use Policy, Elsevier, vol. 109(C).
    13. Millimet, Daniel L. & Rangaprasad, Vasudha, 2007. "Strategic competition amongst public schools," Regional Science and Urban Economics, Elsevier, vol. 37(2), pages 199-219, March.
    14. Eric Dubois & Matthieu Leprince & Sonia Paty, 2007. "The Effects of Politics on Local Tax Setting: Evidence from France," Urban Studies, Urban Studies Journal Limited, vol. 44(8), pages 1603-1618, July.
    15. Lyytikäinen, Teemu, 2012. "Tax competition among local governments: Evidence from a property tax reform in Finland," Journal of Public Economics, Elsevier, vol. 96(7-8), pages 584-595.
    16. Wang, Jian & Wu, Qun & Yan, Siqi & Guo, Guancheng & Peng, Shangui, 2020. "China’s local governments breaking the land use planning quota: A strategic interaction perspective," Land Use Policy, Elsevier, vol. 92(C).
    17. Bordignon, Massimo & Cerniglia, Floriana & Revelli, Federico, 2003. "In search of yardstick competition: a spatial analysis of Italian municipality property tax setting," Journal of Urban Economics, Elsevier, vol. 54(2), pages 199-217, September.
    18. repec:hal:cesptp:hal-00800688 is not listed on IDEAS
    19. Michael P. Devereux & Simon Loretz, 2013. "What Do We Know About Corporate Tax Competition?," National Tax Journal, National Tax Association;National Tax Journal, vol. 66(3), pages 745-774, September.
    20. Benny Geys & Steffen Osterloh, 2013. "Borders As Boundaries To Fiscal Policy Interactions? An Empirical Analysis Of Politicians’ Opinions On Rivals In The Competition For Firms," Journal of Regional Science, Wiley Blackwell, vol. 53(4), pages 583-606, October.
    21. Rincke, Johannes, 2010. "A commuting-based refinement of the contiguity matrix for spatial models, and an application to local police expenditures," Regional Science and Urban Economics, Elsevier, vol. 40(5), pages 324-330, September.

    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:15713. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.