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.
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