Local price variation and the tax incidence of state lotteries

Thomas Garrett and Natalia Kolesnikova

No 2010-035, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This paper explores the seemingly innocuous practice of ignoring the local price vector in empirical models of lottery demand. We argue using consumer theory that local consumption prices should be included and that the failure to consider local prices results in income elasticity of lottery demand estimates that are biased downward. Using a sample of MSAs, we find that, in accordance with our theory, local prices are a significant determinant of lottery sales and the income elasticity of demand for lotteries is greater in magnitude when the local price vector is considered. The degree of lottery regressivity is thus overstated when local prices are omitted. One notable finding is that the tax incidence of lotteries changes from regressive to progressive once the local price vector is included.

Keywords: Gambling industry; Taxation (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-pbe and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2010/2010-035.pdf Full text (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlwp:2010-035

Ordering information: This working paper can be ordered from
subscribe@stls.frb.org

DOI: 10.20955/wp.2010.035

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis (scott.stlouis@stls.frb.org).