New Evidence on the Link Between Government Subsidies and Wagering

The total volume of wagering on horse racing is important because it affects both racetrack and state revenues. This paper uses both daily data and data from individual races to explore the influence of a particular government subsidy, the sire stakes, on the racing industry. Previous work using daily data has found that this subsidy has no statistically reliable influence on the volume of wagering and that it amounts to a direct transfer from taxpayers to the breeding industry. My much larger sample of daily data produces the same result, but using new data from individual races, the results differ: I find a small but statistically significant increase in wagering on subsidized races. The increase is probably just too small to be detected in daily data. My results suggest, though, that the economic significance of the increase is almost surely too little to recoup the government's investment fully. For subsidized races to be a good use of taxpayers' money, then either taxpayers must derive other benefits or else the state must generate additional revenue because of the subsidy. I list several possible avenues to make that argument. I also suggest public goods that the industry might produce.