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01-09-2014 | Original Paper

Gambling with Stimulus Payments: Feeding Gaming Machines with Federal Dollars

Authors: Jenny Lye, Joe Hirschberg

Published in: Journal of Gambling Studies | Issue 3/2014

Abstract

In late 2008 and early 2009 the Australian Federal Government introduced a series of economic stimulus packages designed to maintain consumer spending in the early days of the Great Recession. When these packages were initiated the media suggested that the wide-spread availability of electronic gaming machines (EGMs, e.g. slot machines, poker machines, video lottery terminals) in Australia would result in stimulating the EGMs. Using state level monthly data we estimate that the stimulus packages led to an increase of 26 % in EGM revenues. This also resulted in over $60 million in additional tax revenue for State Governments. We also estimate a short-run aggregate income demand elasticity for EGMs to be approximately 2.

Here we refer to EMGs to describe a variety of electronic slot machines or video lottery terminals (VLTs) that use random number generators to determine outcomes. The term “pokies” is the Australian vernacular for poker machines, the most common electronic gaming machine in use in Australia. These machines are programmed to provide a regulated probability of a payoff.

The term hotel in Australia is used to refer to an establishment that may only have a bar and a tavern, usually with limited or no sleeping accommodation and are run as profit making enterprises. Clubs are usually smaller than a casino and are owned by local organizations such as social and sports clubs which are run for the benefit of the members. The majority of EGMS are located in hotels and clubs.

All $ amounts here are quoted in Australian dollars unless otherwise stated. During the period of the stimulus (from Dec 2008 to March 2009) the average exchange rate for the $AU and the $US was 0.67$US = 1$AU.

Kevin Rudd was the Prime Minister of Australia at the time of the Economic Stimulus payments.

These figures were obtained from annual New South Wales Treasury documents.

The sources of the data are www.vcgr.vic.gov.au; www.olgc.sa.gov.au; www.olgr.qld.gov.au. New South Wales is traditionally much less forthcoming about the provision of details of their gambling industry.

Note in this case we explicitly do not use HAC standard errors due to possible generation of inconsistent inferences as noted by Fomby and Murfin (2005) for similar event studies.

A further check of this specification was made where event dummy variables where included for all other December, April, May, and June combinations possible in the span of the data and no other combination was found to have any significant positive impact on demand.

Source: Australian National Accounts publication ABS 5206.0 Table 14 Household income account, current prices.

Note that this is not an estimate of individual income elasticity for gaming. Because most of the stimulus was paid to households that are on the lower end of the income distribution—the estimate for the disposable income of those individuals who received the payments is probably too high which would make their % increase in quarterly income higher and thus lower the implied elasticity. Also because there was little price variation over this period we can assume the shift in demand was predominantly due to the short-run income shock.

Note that the Australian government’s stimulus to the construction industry via infrastructure investment is not included in this amount since its influence on disposable income would have occurred over a much longer period.

These calculations only take into take into account the revenue from gaming collected by the States. The Australian Government also charges a goods and services tax on gambling expenditure and this is also returned to the States and Territories. The amount States received as a result of the goods and services tax is not included in these calculations.

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Title: Gambling with Stimulus Payments: Feeding Gaming Machines with Federal Dollars
Authors: Jenny Lye
Joe Hirschberg
Publication date: 01-09-2014
Publisher: Springer US
Published in: Journal of Gambling Studies / Issue 3/2014
Electronic ISSN: 1573-3602
DOI: https://doi.org/10.1007/s10899-013-9377-6

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