Have Casinos Contributed to Rising Bankruptcy Rates?

Abstract

This article examines the relationship between casino gambling and bankruptcy rates in U.S. counties using a panel of UlS. county-level data from 1990-2005. We contribute to the literature in several ways, perhaps most notably by examining the possibility that the effect of a casino on bankruptcy may differ over the casino's lifespan. Results confirm this possibility, indicating tha tthe impact of casinos on bankruptcy follows a "u-shaped" curve over the life of the casino. More specifically, regression analysis indicates the existence of a casino in a county increases the bankruptcy rate by more than 9% in the first year of operation. The percentage of additional bankruptcies then decreases through the third year after the casino opens. Bankruptcy rates in casino counties then slightly fall below that of the non-casino counties during the fourth through seventh years after opening, increasing once again in the eighth year and thereafter. This cycle corresponds closely to the 6 year statute of limitations applicable to Chapter 7 bankruptcies during the years of this study.

Keywords: Casinos, Bankruptcy

JEL Classification: L6, K0