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

Abstract

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.