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

  • Mark W. Nichols

    ()

    (Department of Economics, University of Nevada, Reno)

  • Mehmet Serkan Tosun

    ()

    (University of Nevada, Reno)

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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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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  1. James H. Stock & Mark W. Watson, 1991. "A simple estimator of cointegrating vectors in higher order integrated systems," Working Paper Series, Macroeconomic Issues 91-3, Federal Reserve Bank of Chicago.
  2. 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.
  3. 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.
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  6. Suits, Daniel B, 1979. "The Elasticity of Demand for Gambling," The Quarterly Journal of Economics, MIT Press, vol. 93(1), pages 155-62, February.
  7. 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.
  8. 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.
  9. Harry W. Richardson & Peter Gordon & James E. Moore, 2007. "Introduction," Chapters, in: The Economic Costs and Consequences of Terrorism, chapter 1 Edward Elgar.
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