Has Riverboat Gambling Reduced State Lottery Revenue?

Abstract

Over the past decade, most states have introduced lotteries, and many now license casinos. To what extent does the presence of licensed casinos cannibalize revenues from state-sponsored lotteries? To what extent does pari-mutuel betting cannibalize revenues from state-sponsored lotteries? Based on pooled cross-section data for the period from 1989 to 1995, this research reveals significant cannibalization of lottery revenues by both casinos and pari-mutuel betting. Nevertheless, states, in general, gain by having both lotteries and casinos. In the case of pari-mutuel betting, however, the substitution is so severe that, at existing effective tax rates, lost lottery revenues outweigh states’ receipts from pari-mutuel betting.