The Initial Impact of Casino Gaming on Bankruptcy Filings in
Louisiana
Dr. Barbara J. Davis
Dr. Helen B. Sikes
Centenary College
Abstract
Louisiana voters overwhelmingly approved riverboat casino gaming in 1993. The
hypothesis of this work is that casino gaming has a relationship with the observed increase in per
capita bankruptcies. The expectation of this research is that the number of bankruptcies is
greater in parishes with casino gaming given the increases in sales tax receipts with decreases in
unemployment. The gaming industry is quick to recognize the added economic benefits and
stimulation due to increases in employment, multiplier effects of salaries paid to employees and
increases in tax payments to local municipalities. The study contributes to the literature by
providing analysis to support or question the claims of the gaming industry.
Introduction
Casino gambling is one of America’s fastest growing and most profitable industries.
Total casino gaming revenues were $24.5 billion in 2000 growing to $25.7 billion in 2001
(American Gaming Association, 2002, p.2). Gaming revenues from Louisiana’s riverboats
exceeded $1.63 billion in 2001 (Louisiana State Police Gaming Control Board website, 2001).
The economic expectations of casino gaming in area markets are initially positive. Local
businesses are expected to benefit from increased population and newly created employment
opportunities produced by casinos. Experience has demonstrated that the introduction of gamingentertainment will expand the economic base and help strengthen the economy in local
communities.
Gaming is generally considered as a means of economic stimulation and job creation, and
as an additional source of tax revenue for those states where gaming is legalized. The casino
gaming industry contributes to their local economies in the form of wages and taxes. Casino
establishments made payments in 2000 of an estimated $3.5 billion in taxes to federal, state and
local governments and paid wages in excess of $10.9 billion to approximately 370,000 casino
employees. Related industries additionally employed 450,000 people to support the growing
casino markets (American Gaming Association, 2002, p. 3). The casino gaming industry appears
to have a significant positive impact on a region’s economy using employment rates and taxes to
summarize economic indicators.
Some of the expected economic impacts from the introduction of casino gaming in the
Louisiana market include creation of new full-time jobs and the related increases in population
and tax payments to state and local governments. These benefits notwithstanding, the hypothesis
of this work is that the number of personal and business bankruptcy filings increases in parishes
with casino gaming.
The purpose of this study is to examine the effect of the casino gaming industry in
Louisiana on the number of bankruptcy filings as influenced by local sales tax receipts and
unemployment. Supporters of casino gaming often argue that the gaming industry helps
economies by improving local economic activity through reductions in local unemployment rates.
The newly employed spend their wages which increases local sales tax receipts. If casino gaming
has a positive effect on the economy, the hypothesis addresses an expected decline in number of
bankruptcies in parishes with approved casino gaming. Alternatively, a negative impact of
gaming is observed in Louisiana through increases in bankruptcies in parishes with riverboat
casinos even though the gaming industry publications document resounding benefits to local
economies from casino operations.
The expectation of the study is that the decline in unemployment observed in gaming
communities should generate wages, increasing excess disposable income that is totally or
partially consumed in retail outlets and gaming establishments. As consumers spend and increase
their credit card limits, sales tax receipts rise. Excess disposable income for these consumers may
be inadequate to maintain personal debt service. When minimum required debt service increases,
so also does the probability that these consumers might be forced to file bankruptcy. The presence
of gaming in a parish is expected to positively increase the number of bankruptcy filings due to
the likelihood that individuals will spend or gamble more than excess disposable income allows.
Recognizing the ease in availability of personal unsecured credit, consumers in gaming
communities might increase credit limits beyond affordable levels and therefore, be forced to file
bankruptcy.
Literature Review
Eadington (1999) examines the major changes that have developed in the casino and
gaming industry over the past forty years. In his study, the potential gains from gaming include
expected economic ancillary benefits that include job creation, investment stimulation, tourism
development and improvement of the economic status of underprivileged groups. Local
economies also benefit from increases in local taxes paid by gaming organizations.
According to Truitt (1996), the primary motivation for legalized gambling appears to be
to capture the tax revenues it generates. The study investigated casino gaming in Illinois and
assessed the impact of gambling on businesses in gaming communities. His findings suggest that
gaming in Illinois has not stimulated economic development and tourism to the degree expected.
One goal of the Illinois gaming legislation was to stimulate economic development particularly in
the tourism industry. Findings indicate mixed results. Riverboat gaming spawned many new
businesses yet some of those new businesses failed. Casino gambling in the large metropolitan
Illinois riverboat communities does not appear to have stimulated much economic activity other
than in the gambling arena (Truitt, 1996).
Wagoner and Walker (1998) examine the effects of employment growth on retail sales
between Mississippi counties that have approved legalized gaming and those counties that have
not approved legalized casino gaming. Employment increases typically improve retail sales in the
region. However, they hypothesize that some of the income generated by the increase in
employment activity from casinos will be spent in gaming activities. Based on their results, they
report no significant difference between casino and non-casino counties when examining
employment growth effects on retail sales.
Caneday and Zeiger (1991) surveyed residents and entrepreneurs in Deadwood, South
Dakota concerning the impact of gaming and tourism on the economy and lifestyle of residents.
Their study confirms three conclusions suggested by Eadington 1986:1). The character and
reputation of the host community is undeniably altered because of tourism generated by
gambling. 2) Individual attitudes toward gambling depend on its improvement or deterioration of
personal quality of life. 3) Economic activity tends to be concentrated in the geographic vicinity
of the gambling district (Caneday and Zieger, 1991).
Anders, Siegel, and Yacoub (1998 b) analyze the impact of the introduction of Indian
casino gaming on transaction privilege taxes in Arizona. Their empirical results suggest that
Indian casinos have destabilized projected Arizona sales tax revenues. They present evidence of
income shifting from taxable businesses such as restaurants and bars to non-taxable gambling
establishments. In another study, Anders and Siegel find that expansion of riverboat casinos was
associated with a decline in expenditures on other forms of entertainment (Anders and Siegel,
1998 a).
Although a study completed by the Louisiana State University-Shreveport Center for
Business Research (1999) suggests that casino gaming was not a primary cause for bankruptcy
filing, the participants in the study indicated that gaming and the ease of securing credit at all
hours of the day and night was a secondary cause of bankruptcy filings. The researchers
interviewed Gamblers Anonymous members to identify the hidden costs and indirect benefits of
casino gaming in a community for stakeholder groups.
Description of the Data
The data are compiled from several sources: Federal District Bankruptcy Courts in
Louisiana, the Center for Business and Economic Research at Northeast Louisiana University
(LEAP) and the State Department of Revenue and Taxation. A regression model estimates the
relationship between variables representing number of bankruptcies by parish, unemployment,
sales tax receipts and a dummy variable representing the presence of casino gaming for 1996,
1997 and 1998. Table 1 presents the definition of variables and data source.
Table 1 Definition of Variables
Variable
Definition
BANKRUPTCIES
Number of Chapter 7, 11, & 13 bankruptcy filings by parish as reported
by the Western, Eastern, and New Orleans Districts of the U. S.
Bankruptcy Court
UNEMPLOYMENT
Rate of unemployment by parish.
Source: Center for Business and Economic Research at Northeast
Louisiana University (LEAP)
SALES TAX
Parish Sales Tax Collections as reported by the Louisiana Department
of Revenue and Taxation
GAMING
Indicator variable (1 for a parish with gaming, 0 for a non-gaming
parish).
Source: Louisiana Tech Center for Business Research
This study explains the relationship between number of bankruptcy filings in Louisiana,
the presence or absence of casino gaming and local economic and demographic data. The
research utilizes a regression model testing for a significant relationship between independent
measures of unemployment, sales tax revenues and the presence or absence of casino gaming and
the dependent variable number of bankruptcy filings. If a significant relationship exists, the
implications should be important for a local economy.
Table 2 presents descriptive statistics for the data set. The average number of bankruptcies
for the sixty-four parishes in Louisiana increased during the study period. In 1995, the average
number of bankruptcies per parish was 179.98 as compared to 293.49 in 1998. The standard
deviation for number of bankruptcies has also increased which illustrates the greater number of
bankruptcy filings in certain parishes. Average unemployment for the sixty-four parishes declined
slightly from 8.56% in 1995 to 7.50% in 1998. Sales tax receipts increased during 1996 and 1997,
but declined in 1999 with the average over the period ranging from $10.8 million to $12.2 million.
Table 2 Descriptive Statistics for the Data Set
N=63*
1995**
1996
1997
Mean
Mean
Mean
Std. Dev.
Std. Dev.
Std. Dev.
BANKRUPT
179.98
257.86
293.90
281.98
401.01
450.03
UNEMPLOYMENT
8.56
8.42
8.20
(UNEM)
2.52
2.57
3.50
SALES TAX
10,818,169
12,237,924
11,782,868
25,073,538
27,995,538
26,666,327
* Louisiana has 64 parishes. Jefferson Parish does not separately report number of
bankruptcies. This parish reports bankruptcy filings with Jefferson Davis parish.
**1995 data represent 50 parishes. The New Orleans District U. S. Federal
Bankruptcy court could not provide data prior to 1996 (14 parishes).
Variable
1998
Mean
Std. Dev.
293.49
451.81
7.50
2.76
10,824,520
26,696,257
Table 3 summarizes descriptive statistics for gaming parishes as compared with non-gaming
parishes. Average number of bankruptcies in gaming parishes increased from 110 in 1995 to 166 in
1998, a 50.91% increase in gaming parishes. Non-gaming parishes observed a 100% increase in
bankruptcies during the same time period. One possible explanation for the larger increase in nongaming parishes is a displacement effect that occurs when people from contiguous, rural parishes
come to the urban, metropolitan gaming parishes in Louisiana to spend their money and gamble. The
gaming concentration and greater number of spending outlets in Shreveport-Bossier, Lake Charles,
New Orleans and Baton Rouge present more opportunities for the rural gaming patrons than are
available in their home communities. This explanation is also supported by the large percentage of
increase in sales tax receipts in the gaming parishes. Sales tax receipts in gaming parishes increased
53.65% as compared to the 15.0% increase in sales tax receipts in non-gaming parishes. These
descriptive statistics illustrate the increase in consumer spending in gaming parishes compared to the
dollars of consumer spending in the non-gaming areas.
Table 3 Descriptive Statistics for Gaming Parishes vs. Non Gaming Parishes
N=63 (9 Gaming; 54 Non-Gaming)
1995
1996
1997
1998
Variable
Mean
Mean
Mean
Mean
Gaming/
Gaming/
Gaming/
Gaming/
Non-Gaming
Non-Gaming
Non-Gaming
Non-Gaming
BANKRUPT
110
125
127
184
163
211
166
249
UNEM %
9.4
8.4
8.0
8.3
7.0
7.9
7.0
7.2
SALES TAX
(000s)
5,234
7,355
5,916
8,276
6,775
8,001
8,042
8,459
Unemployment steadily decreased in gaming parishes from 9.4 percent in 1995 to 7.0
percent in 1998, a 25.53% decline. Non-gaming parishes experienced a drop in unemployment from
8.4% to 7.2%, a 14.29% decrease. It is interesting to note that the unemployment rate decreased at a
faster rate in gaming parishes than in non-gaming parishes. With lower rates of unemployment,
personal disposal income increased during the steady period which led to the increases in consumer
spending, evidenced by the increase in sales tax receipts. This increase in spending, if not cautiously
managed by the consumer, could ultimately lead to bankruptcy.
Model Specification
A regression model estimates the relationship between variables representing number of
bankruptcies, unemployment, sales tax receipts and the presence or absence of casino gaming for
1996, 1997, and 1998. In the regression model, number of bankruptcy filings is hypothesized to
be a function of the unemployment rate, sales tax receipts and gaming. The variables are not
lagged, the data represent observations for each measure during the study years. Multicolinearity
between the independent variables is not problematic as evidenced by the correlation matrix, see
Table 4.
Table 4 Correlation Matrix
1998 Pearson Correlation Coefficients
VARIABLE
BANKRUPT
UNEM %
SALES TAX
(000s)
BANKRUPT
UNEM %
SALES TAX
1.00
-.260075
1.00
.923311
-.251992
1.00
Correlation between the two independent variables does not exceed .50. White’s test for
model misspecification is not significant for the most recent study year, 1998 (F-statistic 1.05,
prob. 0.411). Therefore, the test does not indicate the presence of heteroskedasticity in the data
set.
We estimate the following equation:
BANKRUPT = β0 + β1UNEMPLOYMENT + β2SALESTAX + β3GAMING
(1)
For the model, the dependent variable number of bankruptcies is a function of the
independent measures of unemployment, sales tax receipts, and gaming. The expectation is that
the presence or absence of gaming will have a significant impact on the number of bankruptcies
filed in each parish. The related employment and demographic variables should also significantly
impact the bankruptcy measure because of the effects on consumer disposable income.
The unemployment rate (UNEMPLOYMENT) in a parish is expected to impact the
number of bankruptcies filed in the parish because of the lack of consumer disposable income.
When parishes legalize casino gaming, the population rate is expected to increase to meet the
demand for jobs in the service industries and associated construction and products industries.
Any population increase should reduce the number of bankruptcy filings because of the
associated job growth that spurs additional consumer disposable income. In parishes with casino
gaming, the unemployment rate is expected to be lower than in parishes without casino gaming.
Consumer spending is proxied by local sales tax receipts (SALESTAX). Local sales tax
revenues increase when consumers make purchases by paying cash or using available credit.
Historically low interest rates over long time periods and ease in credit standards have made it
possible for borrowers to increase their level of unsecured debt. Some consumers are likely to
take advantage of the ease in securing additional credit and increase personal spending and credit
beyond affordable limits. Additional credit is readily available when average disposable income
rises, one result of low unemployment. Sales tax receipts will rise following increases in
consumer spending. A positive relationship between sales tax receipts and number of bankruptcy
filings is anticipated.
GAMING is an indicator variable that identifies the nine parishes in Louisiana that have
legalized gaming. Bossier, Caddo, Calcasieu, Jefferson, East Baton Rouge, Orleans, St. Mary,
Avoyelles, and Allen parishes have one or more gaming facilities in each parish. Expected
coefficient signs for UNEMPLOYMENT, SALESTAX and GAMING are positive. As
unemployment increases, the probability of consumers filing bankruptcy increases due to the decline
in disposable income. Increasing sales tax revenues indicates more spending from consumers that
may or may not be able to afford to repay consumer credit. The presence or absence of gaming is
expected to positively increase the number of bankruptcies due to the likelihood that individuals will
spend more than they should coupled with the ease in securing short-term credit and therefore, be
forced to file bankruptcy.
Results
Table 5 summarizes regression results. The F-statistic indicates that there is an overall
significant relationship between unemployment, sales tax receipts, the presence of casino gaming
and the number of parish bankruptcy filings. For each of the study years, Panel 1 of Table 5
summarizes the F-statistic and Adjusted R-squared for the model. The Adjusted R-squared ranges
from .67 to .86 to indicate the explanatory power of unemployment, sales tax receipts and casino
gaming on the number of parish bankruptcy filings.
Panels 2, 3, 4, and 5 summarize annual regression coefficients for the model. For all
years, the model is significant in explaining variation in number of bankruptcy filings as
evidenced by the F-statistic (p-value). Annual sales tax receipts and the presence of gaming are
significant explanatory variables in each of the four study years. Both of these measures are
significant at the .05 level for each year except 1995. The coefficient sign for these two measures
implies that there is a positive relationship between sales tax receipts, the presence of gaming and
number of bankruptcy filings. However, parish unemployment rates do not contribute to the
explanatory power of the model. This measure is not significant in any of the study years.
Table 5 Regression Results
BANKRUPT = β0 + β1UNEMPLOYMENT + β2SALESTAX + β3GAMING
n=63 (9 Gaming; 54 Non-Gaming)
Panel 1
YEAR
1995
1996
1997
1998
Prob.
(F-statistic)
62.98198
132.9934
108.1956
42.71959
Adjusted
R-squared
.791441
.864623.
.838368
.672323
Panel 2: 1995
Variable
INTERCEPT – 1995
UNEMPLOYMENT –1995
SALES TAX – 1995
GAMING – 1995
Panel 3: 1996
Variable
INTERCEPT – 1996
UNEMPLOYMENT –1996
SALES TAX – 1996
GAMING – 1996
Panel 4: 1997
Variable
INTERCEPT – 1997
UNEMPLOYMENT –1997
SALES TAX – 1997
GAMING – 1997
Panel 5: 1998
Variable
INTERCEPT – 1998
UNEMPLOYMENT –1998
SALES TAX – 1998
GAMING – 1998
Coefficient
Std. Error
t-stat
P-value
155.5197
-10.16229
8.42E-06
117.9630
72.26786
7.798086
8.48E-07
60.88311
2.152
-1.303
9.933
1.938
0.0367
0.1990
0.0000
0.0588
Coefficient
Std. Error
t-stat
P-value
192.9444
-10.19893
9.05E-06
201.7132
84.46558
9.602270
6.65E-07
83.44654
2.284
-1.062
13.606
2.417
0.0260
0.2925
0.0000
0.0187
Coefficient
Std. Error
t-stat
P-value
191.1761
-7.192740
9.53E-06
264.6051
75.20181
8.593054
7.89E-07
99.42012
2.542
-0.837
12.077
2.66
0.0137
0.4059
0.0000
0.0100
Coefficient
Std. Error
t-stat
P-value
366.6972
-26.63572
8.96E-06
326.0478
128.9351
16.33596
1.27E-06
148.5322
2.844
-1.630
7.049
2.195
0.0061
0.1084
0.0000
0.0322
Summary and Conclusions
This study implies that a positive relationship exists in Louisiana between parish
bankruptcy filings, local sales tax receipts and the presence of casino gaming. One early
implication from the regression results is that if parishes approve casino gaming, unemployment
will decrease (which impact disposable income) and sales tax receipts will rise as individuals
increase spending. The number of individual and corporate bankruptcy filings should follow suit
as some consumers increase spending beyond their debt-servicing ability. This indicates that
some consumers may spend more dollars after obtaining additional lines of unsecured credit
which are also soon exhausted. Given time, individuals and businesses cannot continue to juggle
incoming cash to meet rising interest and principle payments. The option to file for bankruptcy
protection appears to present an easy solution to the consumer’s endless list of required minimum
payments. The study results imply that the presence of casino gaming positively impacts the
number of bankruptcy filings in a gaming parish. Further study in this area should include
economic measures for unemployment and consumer credit availability.
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