Gaming, states, and tax revenues—the tortoise or the hare: A CGE comparative assessment of
State tax revenues from casinos as a share of total state gaming revenues generally correlate well with the year of legalization. The share ranges from about 8.0 percent in Nevada, the first state to legalize gambling, to 47.4 percent in Pennsylvania, one of the most recent states to legalize gambling. Legal casino gaming during the past four decades has been viewed through a political lens that has enabled society to see the industry as a means of achieving a “higher purpose.” Thus, in some states tax revenues generated by gambling are earmarked for specialized public services for senior or non-ambulatory citizens or the reallocation of wealth to underprivileged groups. Such purposes can be fulfilled when a state captures some of the large economic benefits that can arise from legalizing a previously prohibited economic activity like casino gaming. However, heavy tax rates should dampen growth of the casino revenues in states that adopt them. Indeed, states with lower tax rates tend to have larger gaming revenue streams, what suggests that more jobs and income are generated directly by the gaming industry when lower tax rates are applied. Using a detailed computable general equilibrium model we have built for the 2010 economy, we evaluate the effects of a new form of the state’s casino industry in northern New Jersey taxed at rates similar to casinos en Pennsylvania. It is assumed a consumer capture rate for the casino that is similar to that in Pennsylvania.