The effect of legalized gambling on state government revenue

Abstract

Legalized gambling is an attractive option to state governments facing tightening fiscal constraints. Yet, the empirical evidence on the effect of gambling on state revenues is limited. Most studies examine a single industry in a single state, and for a relatively short period of time. This study provides a more general analysis of gambling industries and their effects on state revenues. We use data on gambling volume and state government revenues net of federal government transfers for all 50 states from 1985 to 2000. We find that lotteries and horse racing tend to increase state revenues, while casinos and greyhound racing tend to decrease state revenues. © 2010 Western Economic Association International.