Expanded Gambling in Georgia: Social and Economic Impacts to Consider

Public Hearing CommentsAtlanta, GA10 December 2015

Douglas M. Walker, Ph.D.Professor of Economics

College of CharlestonCharleston, SC, USA

About me• Professional Background• College of Charleston (2007-present)• Georgia College (1998-2007)

• Research on socio-economic impacts of gambling• 2 books• More than 50 journal articles and book chapters

• Consultant for state government agencies, including• Florida Legislature• Maryland State Lottery and Gaming Control Agency• Massachusetts Gaming Commission• Missouri Office of the Attorney General• …and various research agencies and industry groups 2

Interest in Georgia• Georgia resident for 9 years• GA casino expansion would represent large expansion in SE,

and could affect politics in South Carolina• Interesting perspectives, outdated research cited during

Savannah meeting in Nov.

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1 Economic perspective on gambling

• Everyone has a perspective, or bias… • Economics focuses on voluntary, mutually beneficial

transactions• Consumers are sovereign and rational

• ‘Gambling’ is putting something of value at risk on the outcome of an uncertain event• Enjoyable and entertaining to some people, not to others

• Since the expected value of all casino bets, lotteries, etc., is negative, gambling must provide entertainment value

• Psychologists generally view the issues from the perspective of minimizing potential harms from expanded gambling…

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Disordered gambling• Research suggests that 0.4 – 2.0% of the adult population has

a gambling disorder• Not ‘rational’ – inability to control behavior• Suffer financial stress, problems with family, friends, career• ‘Social costs’ are attributed to pathological gamblers• Common view that ‘vice’ goods with potential for addiction

should be regulated• Gov’t role to protect vulnerable populations• Gambling is viewed differently from ice cream, shoes, etc.

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2 Economic benefits

• Measurable benefits include:• Tax revenues • Employment & wages• Economic growth/development

• Less-measurable benefits:• Consumer benefits

• More entertainment firms competing => lower prices• Higher quality ‘entertainment’ options• Increased variety

• ‘Counterfactual’ is important • What industry might have otherwise expanded?

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Tax revenues• Taxes are technically transfers of wealth• Tax revenues are the primary reason for legalization in the U.S.• Tax rates on GGR range from 6% to over 60%

• CT tribal casinos pay 25% slot revenues to state• DE tax on VLT revenue 62%• ME taxes 16% table games, 39-46% on slots• MD slots taxed at 67%; 20% on table games• PA slots taxed at 55%

• Then casinos pay income taxes…• Lower tax rates are likely to encourage larger capital

investment

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Tax revenues, cont.• 2011 study showed slightly negative effect of casino revenues

on state tax revenues• But effect is positive when tourism and economic growth effects

are considered – indirect tax revenues attributable to casinos• States tax GGR at much higher rates (25-30% avg) than sales

taxes (6% avg)• 1-to-1 substitution in spending => casinos increase tax revenues• Lottery ‘tax’ is about 30%

• Lottery and casinos will raise more tax revenue than either alone

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Market saturation?• Is the NE market ‘saturated’?• Closure of 4 of 12 Atlantic City casinos• Should a particular state care about regional saturation?

• Are casino companies willing to build more?• A great market test of a saturated market

• Regulations may need to consider potential future competition • Discussion of lower tax rates in DE, IN• Other regulatory changes to help stabilize industry

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Casino revenues in NE states

102001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

0

1,000

2,000

3,000

4,000

5,000

6,000

DelawareMaineMarylandNew JerseyNew YorkPennsylvaniaRhode Island

Year

Rev

enue

(mill

ions

$)

Casino taxes paid in NE states

111998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0

200

400

600

800

1,000

1,200

1,400

1,600

DelawareMaineMarylandNew JerseyNew YorkPennsylvaniaRhode Island

Year

Taxe

s pa

id (m

illio

ns $

)

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Casino taxes & politics• Taxes from gambling (casinos + lotteries) represent < 5% of

revenue in most states• Gov’t allows industry to exist, enforces monopoly• ‘Defensive legalization’• Why not keep $ at home?

• Gambling taxes are ‘voluntary’• ‘regressivity’ question is interesting

• Fiscal stress relief• Avoid cutting spending or raising other taxes

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Employment & wages• Do casinos create new jobs or ‘cannibalize’ jobs in other

industries?• County-level analysis shows a positive employment effect and

minor wage effect from casinos• Positive impacts concentrated in entertainment & hospitality

sectors• Effect size depends on county size

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Casinos and economic growth• Some markets clearly see significant economic growth due to

casinos• Las Vegas• Macao• Mississippi Gulf Coast

• Intuition: increased economic activity is the source of economic growth

• Impacts in other markets not as obvious

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Consumer benefits• Rarely discussed in political debate over casinos• Benefits mentioned earlier• Lower prices • More variety • Higher quality

• Tourism: new option for potential tourists• Entertainment isn’t tangible, but it benefits consumers• Baseball game tickets• Critics: gambling is a ‘sterile transfer of money’

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3 Economic costs• ‘Industry cannibalization’• Evidence that casinos harm lottery sales

• Relationship to other industries: ‘market competition’• Little evidence of an overall negative impact on other industries• Results could be market-specific

• Additional infrastructure requirements• Regulations/taxes typically require casinos to pay for

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Net (measurable) economic impact• Considering just the economic benefits• Tax revenues• Employment & wage effects• Consumer benefits

• And economic costs• Inter-industry competition

• Gambling industries• Non-gambling industries

• Infrastructure costs• Very likely to be positive

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4 Social costs of gambling• Social costs are mostly attributed to pathological gamblers• Income lost from missed work• Crime • Corruption of public officials • Divorce caused by gambling• Bankruptcy

• Most ‘costs’ defy monetary measurement• But they’ve been estimated at $10,000• Critics claim: Cost:Benefit ratio is 3:1

• But policymakers need data to help inform decisions…

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Comorbidity• Most pathological gamblers have other disorders• Petry, Stinson, and Grant (2005, p. 569) find:• 74.2% have alcohol use disorders• 38.1% have drug use disorders• 41.3% have anxiety disorders• 28.5% have obsessive-compulsive personality disorder

• How can ‘social costs of gambling’ be measured when most pathological gamblers have multiple disorders?• Most social cost studies ignore this issue• Result is an exaggeration of the social costs attributable to

gambling.

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5 Casinos and crime• Key concern about casinos is the potential link to crime• Pathological gamblers are more likely to commit crimes• Casinos attract potential victims with cash and potential

criminals• Evidence is mixed, and appears to be dependent upon how

‘crime rate’ is measured• Include or exclude ‘visitors’?• Reno studies showed areas near casinos are safer

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6 Other concerns• Other important concerns defy measurement in cost-benefit

analyses• Citizens may have concerns about gambling changing the culture

• NIMBY• Moral concerns about gambling

• Should the state condone casino gambling?• What about lottery gambling?• Beer with > 5% ?

• Individual freedom and the role of government in restricting industry?

• These are real considerations that often get ignored in the face of seemingly precise and authoritative data

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Summary of research• Good data, ability to measure economic benefits• Employment • Wages • Tax revenues

• Difficult to measure consumer benefits• Economic costs (e.g., industry cannibalization) are more

difficult, but still measurable• Social costs are very difficult to measure • Research should focus on types of harms and their prevalence –

not estimating social costs in $

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Contact InformationDoug WalkerProfessor of EconomicsCollege of Charleston5 Liberty St., Rm. 427Charleston, SC 29401

Tel: (843) 953-8192Email: dougwalker2@gmail.comWeb: walkerd.people.cofc.edu

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