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Separating the Decisions of Lottery Expenditures and Participation: a Truncated Tobit Approach

Author

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  • Harriet A. Stranahan

    (University of North Florida)

  • Mary O. Borg

    (University of North Florida)

Abstract

This study uses a sample of lottery players from three states to estimate the probability of lottery play and expenditures on lottery products using a different methodology than is used in previous studies. The authors reject the parameter restrictions implied by the standard Tobit and estimate the decisions of whether. to purchase lottery products and how much players spend using a probit and truncated Tobit, respectively. Overall, an interesting demographic profile of the players, which was not apparent from the results obtained by estimating the standard Tobit, emerged as a result of separating the decisions. The more general model provides new information for lottery administrators interested in designing programs that specifi cally increase market share versus programs that increase spending for those who already play regularly. This study calculates the expected value of lottery expendi tures to estimate the tax incidence associated with different lottery products. Pre vious studies calculating lottery tax regressivity have used an incorrect formula for the expected value of lottery expenditures. The authors find that the taxes on all lottery games are regressive, with instant games having the greatest regressivity

Suggested Citation

  • Harriet A. Stranahan & Mary O. Borg, 1998. "Separating the Decisions of Lottery Expenditures and Participation: a Truncated Tobit Approach," Public Finance Review, , vol. 26(2), pages 99-117, March.
    • Handle: RePEc:sae:pubfin:v:26:y:1998:i:2:p:99-117
    DOI: 10.1177/109114219802600201
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    References listed on IDEAS

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    1. Borg, Mary O. & Mason, Paul M., 1988. "The Budgetary Incidence of a Lottery to Support Education," National Tax Journal, National Tax Association;National Tax Journal, vol. 41(1), pages 75-85, March.
    2. Vaillancourt, F. & Grignon, J., 1988. "Canadian Lotteries As Taxes: Revenues and Incidence," Cahiers de recherche 8804, Universite de Montreal, Departement de sciences economiques.
    3. Scott, Frank & Garen, John, 1994. "Probability of purchase, amount of purchase, and the demographic incidence of the lottery tax," Journal of Public Economics, Elsevier, vol. 54(1), pages 121-143, May.
    4. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 31(3), pages 129-137.
    5. Lin, Tsai-Fen & Schmidt, Peter, 1984. "A Test of the Tobit Specification against an Alternative Suggested by Cragg," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 174-177, February.
    6. Borg, Mary O. & Mason, Paul M., 1988. "The Budgetary Incidence of a Lottery to Support Education," National Tax Journal, National Tax Association, vol. 41(1), pages 75-85, March.
    7. Charles T. Clotfelter & Philip J. Cook, 1987. "Implicit Taxation in Lottery Finance," NBER Working Papers 2246, National Bureau of Economic Research, Inc.
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    Cited by:

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    2. John Sawkins & Valerie Dickie, 2002. "National Lottery participation and expenditure: preliminary results using a two stage modelling approach," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 769-773.
    3. Anna Bussu & Claudio Detotto & Peter Leadbetter, 2019. "Understanding the influence of guilt, loss and self-awareness on gambling behaviour," Economics Bulletin, AccessEcon, vol. 39(1), pages 223-236.
    4. Brad R. Humphreys & Yang Seung Lee & Brian P. Soebbing, 2010. "Consumer behaviour in lottery: the double hurdle approach and zeros in gambling survey data," International Gambling Studies, Taylor & Francis Journals, vol. 10(2), pages 165-176, August.
    5. Zhiming Cheng & Russell Smyth & Gong Sun, 2013. "Participation and Expenditure of Rural-Urban Migrants in the Illegal Lottery in China," Monash Economics Working Papers 24-13, Monash University, Department of Economics.
    6. James Rude & Yves Surry & Robert Kron, 2014. "A generalized double-hurdle model of Swedish gambling expenditures," Applied Economics, Taylor & Francis Journals, vol. 46(34), pages 4151-4163, December.
    7. John Eakins, 2016. "Household gambling expenditures and the Irish recession," International Gambling Studies, Taylor & Francis Journals, vol. 16(2), pages 211-230, August.
    8. R. Keith Schwer & Rennae Daneshvary, 2000. "Tipping participation and expenditures in beauty salons," Applied Economics, Taylor & Francis Journals, vol. 32(15), pages 2023-2031.
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    10. Brown, Ryan P. & Rork, Jonathan C., 2005. "Copycat gaming: A spatial analysis of state lottery structure," Regional Science and Urban Economics, Elsevier, vol. 35(6), pages 795-807, November.
    11. Cho-Min Lin & Kung-Cheng Lin, 2007. "The demand for lottery expenditure in Taiwan: a quantile regression approach," Economics Bulletin, AccessEcon, vol. 4(42), pages 1-11.

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