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US Taxation of Gambling Winnings and Incentives to Bet

Author

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  • Whelan, Karl

Abstract

Sports betting is growing rapidly in the US after its legalization by the Supreme Court in 2018. This paper describes the treatment of gambling winnings and losses in the federal tax code and shows how the system may incentivize some gamblers to substantially increase the scale of their betting in order to have a chance to win. This incentive stems from the fact that gambling losses can only be deducted if taxpayers are filing for itemized deductions, meaning the scale of gambling losses has to be large enough to push a taxpayer’s eligible deductions over the standard deduction. This incentive to engage in large-scale betting applies mostly to lower and middle-income households.

Suggested Citation

  • Whelan, Karl, 2023. "US Taxation of Gambling Winnings and Incentives to Bet," MPRA Paper 116922, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:116922
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    References listed on IDEAS

    as
    1. Paton, David & Siegel, Donald S. & Williams, Leighton Vaughan, 2004. "Taxation and the Demand for Gambling: New Evidence From the United Kingdom," National Tax Journal, National Tax Association;National Tax Journal, vol. 57(4), pages 847-861, December.
    2. Feldstein, Martin S, 1969. "The Effects on Taxation on Risk Taking," Journal of Political Economy, University of Chicago Press, vol. 77(5), pages 755-764, Sept./Oct.
    3. Evsey D. Domar & Richard A. Musgrave, 1944. "Proportional Income Taxation and Risk-Taking," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(3), pages 388-422.
    4. Naomi Muggleton & Paula Parpart & Philip Newall & David Leake & John Gathergood & Neil Stewart, 2021. "The association between gambling and financial, social and health outcomes in big financial data," Nature Human Behaviour, Nature, vol. 5(3), pages 319-326, March.
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    Keywords

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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism

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