Chapter 43 The Economic Impact of Casino Gambling Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

Chapter 43The Economic Impact of Casino Gambling

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter Outline

• The Perceived Impact of Casino Gambling

• Local Substitution • The Modest Upside of Casino

Gambling

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You Are Here

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Perceptions

• More than 50 million gamblers• Spending nearly $30 billion. • Casinos

– employ 340,000 people – pay $5 billion in taxes.

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Local Substitution

• Are Casinos an economic boon? • Local Substitution

– Money that goes into the casino may have been spent in the community anyway

– If substitution is complete, there is no increase in economic activity.

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Casino Construction

• $100 million investment in community

• Short-term construction jobs

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Casino Operation• A new casino’s economic impact

depends on its location. – When located near an existing

casino, the economic impact is marginal.

– When located in a large city, the economic impact is marginal (the location substitution effect).

– When located in a small community, near enough a large city to draw city residents to the small community, the economic impact can be large.

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Problem: Someone can always get

closer• Because a small community can

thrive with a casino next to a large city, other communities may compete for the city’s gambling dollar.

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Indiana Casinos

Indiana Casino

New Casino inFrench Lick

Cincinnati,Ohio

Chicago

Putting a casino in Terre Haute mightdraw the Indianapolis market, but other cities are closer.

If Plainfield builta casino it would reduce the profits to a Terre Haute casino

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Modest Upside• Senior Economist Thomas A. Garrett of the

St. Louis Federal Reserve notes that, – “Although economic development is used by

the casino industry and local governments to sell the idea of casino gambling to the citizenry, the degree to which the introduction and growth of commercial casinos in an area leads to increased economic development remains unclear.”

– The evidence favors a “modest impact.”

• Indiana evidence– 1991 to 2001 annual growth rate in personal

income • in counties with a casino: 5.3% • in counties without a casino: 5.2%.

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Deceptive Tax Impact

• Much of the tax revenue that gets attributed to casinos would have been paid by others.

• The actual increase in tax receipts exists because the effective tax rate on gambling profits is higher than on other profits.

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Reasons Economists Would Endorse for Limiting Gambling

• The Addictive Nature of Gambling– Gambling, like tobacco, alcohol, and

drugs, is addictive.

• Externalities – Families of gamblers are often

victims of violence or economic depravation.

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Gambling has a Negative Expected Value

• Gambles are not “fair” in the sense that the expected value of a gamble is negative.

• The vig is the percentage of any gamble the house can expect to win.

• The costs and profits of Casinos come from this negative expected value.