European Business Schools Librarian's Group

Working Papers,
Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness

Optimal Taxation of Gambling and Lotto

Walther Herbert ()
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Walther Herbert: Department of Economics, Vienna University of Economics & B.A.

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; H February 2005

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