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Department of Economics, WU (Wirtschaftsuniversität Wien) Growth and Employment in Europe: Sustainability and Competitiveness, Department of Economics, WU (Wirtschaftsuniversität Wien)

No 47:
Optimal Taxation of Gambling and Lotto

Walther Herbert ()

Abstract: Bets are analyzed using an intertemporal, state dependent expected utility model with non-linear probability weighting. Gamblers face a tradeoff between long-run expected utility from wealth and the short-run and fading emotional utility from gambling. Different wager tax bets, including lotto, are compared in various settings (fair bet versus monopoly). Reaction patterns are analyzed with respect to tax rates, the price of tickets, jackpots and the ’scale’ of the gamble. It is shown that optimal tax rates are higher for larger lotto communities, jackpots induce overshooting ’bubbles’ and taxes on lotto and fix-prize gambles are regressive.

JEL-Codes: D; 81,; H; 71; (follow links to similar papers)

February 2005

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