Thomas A. Garrett

Gamblers favor skewness, not risk: Further evidence from United States’ lottery games

Abstract Theoretical models of risk have attempted to explain why risk-averse individuals take unfair gambles. Using all United States’ lottery games, we find theoretical and empirical evidence that skewness of prize distributions explains why risk averse individuals may play the lottery.

The revenue impacts of cross-border lottery shopping in the presence of spatial autocorrelation

Abstract In this paper we perform the first-ever analysis of cross-border lottery shopping. We directly estimate the lottery revenue gains and losses between a state and its neighbors using models that account for spatial dependence between cross-sectional units. This methodology has been rarely used in studies exploring regional public finance issues and is shown to improve upon standard OLS estimation of cross-sectional data. We find that cross-border lottery shopping can lead to significant reductions in lottery revenue. Given that 37 states rely on lotteries to fund certain state programs, our results have significant policy implications for state officials and lottery operators.

Aggregated versus disaggregated data in regression analysis: implications for inference

This note demonstrates why regression coefficients and their statistical significance differ across degrees of data aggregation. Given the frequent use of aggregated data to explain individual behavior, data aggregation can result in misleading conclusions regarding the economic behavior of individuals.

Taxation and Product Quality: New Evidence from Generic Cigarettes

In this Journal, Barzel (1976) theorized that per unit taxes should increase the average quality of a product, whereas ad valorem taxes may either lower product quality or leave it unaffected. There are several different ways to present the logic behind this theory. Barzel stresses that per unit taxes do not tax all attributes of a commodity, causing a substitution from the taxed attributes (quantity) into the others (quality).1 Another way is to draw an analogy to the Alchian and Allen (1964) theorem, where the addition of a fixed fee causes a decrease in the relative price of the higher-quality version of the product.2 Because ad valorem taxes add the same percentage to the prices of both the highand low-quality versions of the product, they do not distort relative prices. Thus ad valorem taxes should

On the measurement of rent seeking and its social opportunity cost

Utilizing 4-digit industry data by county,we compare the allocation of resourcesacross industries in state capital areaswith noncapital areas. We are able toidentify which industries are expanded andcontracted relative to noncapital areas. Our results provide the first directevidence and measurement of the forgoneproductive activity resulting fromresources being reallocated toward rentseeking and interest group activity. Ourdata also allow us to measure total rentseeking, and also to isolate the extent ofindirect and in-kind rent seeking, whichcan account for part of the Tullockparadox.

State lottery revenue: the importance of game characteristics

Previous studies have found that lottery ticket sales are influenced by certain socioeconomic characteristics of the population. The authors extend the state lottery literature by examining how lottery game characteristics, such as the overall expected value, the top prize, and the total number of combinations, influence ticket sales after controlling for socioeconomic variables. They perform an empirical analysis on a unique set of data that include information for 135 online lottery games in the United States. The results show that ticket sales are significantly influenced by the size of the top prize and the odds of winning it, but ticket sales are not significantly affected by the expected value of the lower prizes. The out-of-sample predictive power of the model is then tested using a real-world example of changes to the prize and odds structure of PowerBall.

Creating a Policy Environment for Entrepreneurs

This paper demonstrates that levels of entrepreneurship can be greatly affected by the general policy environment. Using a state-level panel, we estimate the effects of several policy variables on rates of entrepreneurship and find that bankruptcy exemptions, corporate tax rates, and the level of the minimum wage all affect a states rate of entrepreneurship. For the median state, these policies reduced the level of entrepreneurship by 10.5 percent. Much of the geographic pattern of entrepreneurship can be explained by policy differences: The low-entrepreneurship states of the Great Lakes and the South tend to have relatively unfriendly policy environments, and the high-entrepreneurship states of the West tend to have relatively friendly policies. On the other hand, although New England states tend to have relatively unfriendly policy environments, they also tend to have high rates of entrepreneurship.

Regional Disparities in the Spatial Correlation of State Income Growth

This paper presents new evidence of spatial correlation in U.S. state income growth. We extend the basic spatial econometric model used in the growth literature by allowing spatial correlation in state income growth to vary across geographic regions. We find positive spatial correlation in income growth rates across neighboring states, but that the strength of this spatial correlation varies considerably by region. Spatial correlation in income growth is highest for states located in the Northeast and the South. Our findings have policy implications both at the state and national level, and also suggest that growth models may benefit from incorporating more complex forms of spatial correlation.

Red ink in the rearview mirror: local fiscal conditions and the issuance of traffic tickets

Municipalities have revenue motives for enforcing traffic laws in addition to public‐safety motives because many traffic offenses are punished via fines and the issuing municipality often retains the revenue. Anecdotal evidence supports this revenue motive. We empirically test the revenue motive using a panel of annual data for North Carolina counties from 1990 to 2003. We find that significantly more tickets are issued in the year following a decline in revenue but that the issuance of traffic tickets does not decline in years following revenue increases. Elasticity estimates reveal that a 10 percent decrease in negative revenue growth results in a 6.4 percent increase in the growth rate of traffic tickets. Our results suggest that tickets are used as a revenue‐generation tool rather than solely a means to increase public safety.

Spatial Dependence in Models of State Fiscal Policy Convergence

We apply spatial econometric techniques to models of state and local fiscal policy convergence. Total tax revenue and expenditures, as well as broad tax and expenditure categories, of state and local governments in each of the 48 contiguous U.S. states are examined. We extend work by Scully (1991) and Annala (2003) in much the same way that Rey and Montouri (1999) extended the literature dealing with income convergence among U.S. states. Our results indicate that most fiscal policies have been converging and exhibit spatial dependence. A more specific interpretation of our general spatial results is that the finding of spatial dependence indicates that the growth paths of state and local fiscal policies are not independent. In addition, we find that total expenditures have been converging faster than output, whereas total tax revenues have been converging slower that output. Our models further demonstrate that state expenditure growth is dependent upon expenditure growth in economically and demographically similar states, while output growth and revenue growth in a state are dependent on output growth and revenue growth, respectively, in contiguous states.