Economic and social impacts of gambling

Casinos create wealth

Economic and Social Impacts of GamblingFor the most part, casinos do not create wealth, they only transfer wealth. An exception exists for some peripheral activities, such as hotels, restaurants, and theaters. Unlike gambling areas, those places have substantial intrinsic value in that people would be willing to spend money there without the possibility of winning money. Gambling areas may be said to have a slight intrinsic value, inasmuch as people would be willing to spend a small amount of money for the “entertainment value” of a game of cards, for example, even if no money could be won.

The substantial portion of casino income which is wealth transfer from the patrons leaves them with less money to spend elsewhere in the economy, and in severe cases leads to bankruptcy and/or criminal behavior such as theft and larceny. If the patrons are from the local area, these costs will be local, if the patrons come from a wide area, the costs will be diluted over a wide area as well.

Casinos create tax revenue

Governments frequently encourage casino construction since they can charge a higher tax rate than on ordinary businesses, justified by calling gambling a “sin” and “discouraging” it by charging higher tax rates.

However, gambling dollars spent in one place reduce the amount spent in other places, so lotteries and other legalized gambling, such as horse racing, may suffer, as well as other non-gambling businesses. Consequently, the tax revenue from those activities will be reduced.

Casinos are an investment in the future

Compared with throwing the money away, governments spending money on casino construction is an improvement, since some of the money spent by the government will be returned as taxes. However, when the opportunity cost of spending on casinos is compared to other ways of spending money, such as improving schools and infrastructure, money spent on casinos has a low rate of return, especially when all of the hidden costs are accounted for.

If we don’t open a casino, someone else will do so and take our money

The implied corollary to this argument is that “we” should take money from other communities before “they” can take it from us. Such competition inevitably leads to an oversupply of casinos as both communities are eager to steal wealth from their neighbors. This oversupply in turn leads the casinos in both communities to be unprofitable. An example of this competition is between Detroit, USA and Windsor, Canada, right across the river from each other. Windsor opened casinos first, in an attempt to attract gamblers from the Detroit area. Detroit countered by opening its own casinos, and now there is a substantial oversupply in the Detroit/Windsor market.

Legalized casino gambling reduces illegal activities

Of course, taking something formerly illegal and legalizing it will automatically “reduce illegal activity”. The activity isn’t really reduced, it actually increases, but it is now considered legal. While some remaining forms of illegal gambling may be reduced by the legal competition, illegal gambling is never eliminated. Furthermore, casinos can attract and cause other illegal activities, such as pickpockets. A concentration of people with money to spend, and the poor impulse control which many gamblers have, leads to a wide range of illegal activities in the immediate area, such as drug sales and prostitution. Of course, legalizing these is another way to “reduce illegal activities” in the area.