Impact of Casino Gambling and Lotteries on Demand for Other ‘Sin’ Goods

Public policy aimed at reducing consumption of tobacco or alcohol products often results in purchases of lower-taxed alternatives. Many studies find tobacco and alcohol to be habit-forming, so taxing these commodities often has little impact in reducing purchases. There is much evidence that different alcohol and tobacco products are either substitutes or complements in use but these studies exclude the impact of casino gambling and lotteries. This is surprising given the evidence of high returns for companies investing in all types of ‘sin’ goods. The demand for ‘sin’ goods is analyzed using both myopic and rational habit-forming models. Durability was found to be largest for wine and tobacco and lowest for casino gambling. Tobacco and beer were the most net habit-forming commodities. All ‘sin’ goods were net habit-forming in the rational model, but under myopic habit formation, spirits and wine were net durable goods. The research highlights the importance of including casino gambling and lotteries, which are typically excluded when estimating substitution or complementarity between ‘sin’ goods. Casino gambling and lotteries are both net habit-forming and are substitutes in use for each other. Imposing taxes to reduce the misuse of alcohol and tobacco products is likely to have some unintended consequences, such as increases in personal expenditure on casino gambling and lotteries.