Gambling on Growth

With the promise of boosting economic growth, states and communities across the nation have added casinos at a very rapid pace, with the number of states legalizing commercial casinos increasing from 11 in 2002 to 24 in 2018.

In 2018, 465 commercial casinos in the 24 casino states collected $9.7 billion in taxes on $41.7 billion in gambler losses for an average tax rate of approximately 23%, or roughly triple the average U.S. sales tax rate. In the 10 TrustBelt (hereafter TB) states, there were 73 commercial casinos with $2.9 billion in tax revenues on $10.6 billion in revenues for an average tax rate of 28%, or well above the U.S. casino tax rate.

In 7 of the 10 TB states with commercial casinos in 2018, casinos were considerably larger at $144.6 million in average 2018 revenue per casino, compared to $79.4 million for U.S. commercial casinos outside the TB. In addition, gamblers spent considerably more at their casinos at $159 per capita, compared to $119 for commercial casinos in states outside the TB. Was the larger casino size in the TB due to residents spending more at their casinos, or was it instead due to bringing casino revenues from gamblers outside of the TB? If TB casinos are attracting gambling dollars from outside, this would contribute to greater economic growth.

Counties with Casinos

In order to investigate the impact of casinos on economic growth, we drill down to the county level. Importantly, all casinos are not alike. First, casinos without hotels, often called convenience casinos, are likely to make a different contribution to economic growth than casinos with hotels, often labeled destination casinos. Destination casinos are often argued by proponents to underpin growth compared to convenience casinos that depend more heavily on drawing gamblers from the local area. By drawing more heavily from the local area, these convenience casinos are more likely to cannibalize dollars from other businesses in the area. As a result, both opponents and proponents of casinos argue that casinos do, or do not, support greater growth.

Data in Table 1 compares per capita income growth between casino and non-casino counties for both TB counties and non-TB counties. As listed, casino counties, both TB and non-TB, outperformed non-casino counties in terms of per capita income growth. Second, non-TB counties outperformed TB counties in both per capita income growth.

If casinos generate greater growth, then one would expect counties with a higher density of casinos to outpace counties with a lower density of casinos. Table 2 investigates this relationship. That is, does economic performance differ depending on the density of casinos per capita? Data in Table 2 indicate that casinos counties with greater density of casinos per capita experienced slower economic growth in both TB, and non-TB counties.

Casinos and Expansion of Government

As indicated earlier, the average tax rate on casino revenues is roughly three times that of the average sales tax rate. Thus, one would expect to record larger growth in government for casino counties than for non-casino counties. Furthermore, opponents of casinos argue that casino operations produce stress on jails, police protection and prisons, all demanding expansions in the size of state and local government.

Table 3 compares the growth in state and local government employment based on whether the county had casinos and whether the county was in the TB, or outside the TB. As presented for both TB counties and for counties outside the TB, casino counties expanded total employment at a faster pace than non-casino counties.

Contrary to expectations, non-casino counties grew state and local government employment at a faster pace than casino counties for both TB counties and non-TB counties. Likewise, casino counties boosted private employment at a faster pace than non-casino counties for both TB, and non-TB casinos.

Summary

Admittedly not controlling for other factors contributing to economic growth, this essay has examined casinos’ addition to economic growth. It was concluded that casinos contributed to higher per capita income and job growth. Additionally, it was found that casino counites, contrary to expectations, did not experience higher growth in state and local employment than non-casino counties.

However, analysis indicated that among casino counties, counties with higher densities of casinos experienced slower economic growth than casino counties with lower densities of casinos. This suggests that casinos that best support economic growth operate in less concentrated markets, thus minimizing cannibalization.