Do bankruptcy rates increase when casinos are introduced into a community?

A series of independent government studies conducted during the late 1990s failed to establish a link between casinos and bankruptcy, and statistics support that finding.

At the request of the U.S. Congress, the Department of the Treasury conducted a study on this topic in 1999 and found “no connection between state bankruptcy rates and either the extent of or introduction of gambling.” Furthermore, the report stated: “This result is supported by a county-level analysis that shows no statistically significant casino effect (proximity to a casino) with regard to county bankruptcy rates.”⁽¹⁾

The study pointed to several key factors that are connected to rising bankruptcy filings in the United States, including amendments to past bankruptcy law, higher levels of debt relative to income, increasing availability of consumer credit through general purpose credit cards and the reduced social stigma of declaring bankruptcy, none of which is related to casino gaming. Some existing studies that found a correlation between bankruptcy rates and the presence of casinos failed to compare bankruptcy rates prior to the introduction of gambling or to investigate the impact of other socioeconomic factors.⁽²⁾

The National Opinion Research Center at the University of Chicago (NORC), in research conducted for the National Gambling Impact Study Commission (NGISC), echoed the Treasury Department findings. The study reported that instances of bankruptcy were no greater in communities with casinos than in communities that do not have casinos.⁽³⁾

In another federally funded study, the General Accounting Office (GAO), in a seven-month investigation of the social and economic impact of gaming in Atlantic City, N.J., found similar results. The report stated that it “could not find data to show a cause-effect relationship between gambling and bankruptcies.”⁽⁴⁾

To study the impact of legalized gambling, Indiana created a state commission in 1998 similar to the federal commission—and reached similar conclusions on bankruptcy. After an examination of questionnaires completed by petitioners for bankruptcy in Evansville, Gary and Indianapolis, the commission found that “… there is not evidence from this survey that people filing bankruptcy were more likely to have problems with gambling.”⁽⁵⁾

Academic studies have reached conclusions consistent with this government research. According to a 2002 University of Louisville study, “Access by individuals to pari-mutuel or casino gaming facilities was found to have no statistically significant impact on personal bankruptcy filings.”⁽⁶⁾ A 1999 Louisiana State University study reached a similar conclusion, stating: “When interviewed concerning the primary cause of the high number of bankruptcy filings in the state, bankruptcy trustees and bankruptcy attorneys were unanimous in identifying the ease in qualifying for credit and the availability of locations of obtaining credit at all times of the day. The trustees did not list the presence of gaming opportunities as a cause of bankruptcy.”⁽⁷⁾

Statistics confirm that there is no link between the rate of bankruptcy filings and the presence of casinos. According to data maintained by the Administrative Office of the U.S. Courts and population statistics from the most recent census (2001), Utah and Tennessee were ranked first and second respectively in 2002 in terms of the number of bankruptcy filings per household. Utah is one of only two states with absolutely no form of legalized gambling whatsoever, and Tennessee had no legalized gambling at that time (but has since added a state lottery).

Total annual bankruptcy filings nationwide grew by 84 percent between 1989 and 2000. During this time, a total of nine states decided to legalize commercial casino gaming. If critics’ assertions were correct, all of these states would have seen increases in bankruptcy filings that were disproportionately high following the introduction of casinos to these communities. Yet, in seven out of the nine states that legalized commercial gaming during the 1990s, the bankruptcy filing growth rate remained below the national average. Michigan and Missouri are the only exceptions, while Colorado, Illinois, Indiana, Iowa, Louisiana, Mississippi and South Dakota all had smaller growth in bankruptcy filings than the United States as a whole over the decade.⁽⁸⁾

If one looks at the growth rate in bankruptcy filings in each of the 50 states during the 1990s, the lack of a causal relationship between casino gaming and bankruptcy becomes even more apparent. Consider the following facts:

Colorado, where commercial casinos opened in 1991, is the only state in the country during the 1990s that actually recorded a negative growth rate in bankruptcy filings.
Of the top 15 states with the highest rate of increase in bankruptcy filings, only one (New Jersey) is a commercial casino state.
Seven of the 11 commercial casino states fell below the national average in terms of bankruptcy filing growth rates during the 1990s.⁽⁹⁾

References

U.S. Department of the Treasury, A Study of the Interaction of Gambling and Bankruptcy (Washington, D.C.: GPO, July 1999). See also Lynda de la Vina and David Bernstein, “The Impact of Gambling on Personal Bankruptcy Rates,” Journal of Socio-Economics 31, no. 5 (2002): 503-09.
U.S. Department of the Treasury, 42-43, 85-92.
National Opinion Research Center, et al., Gambling Impact and Behavior Study, report prepared for the National Gambling Impact Study Commission (Chicago: University of Chicago, April 1, 1999), 70.
General Accounting Office, Impact of Gambling: Economic Effects More Measurable Than Social Effects (Washington, D.C.: GPO, April 27, 2000), 2-3.
Indiana Gambling Impact Study Commission, Key Findings and Policy Choices to Address the Social, Fiscal, and Economic Impacts of Legalized Gambling in Indiana (Indianapolis: State of Indiana, December 1999), 7-8.
Richard Thalheimer and Mukhtar M. Ali, “Personal Bankruptcy and its Relationship to Pari-mutuel Wagering and Casino Gaming,” Contemporary Economic Policy (forthcoming 2004).
Center for Business Research at Louisiana State University, The Impact of Gambling on Personal Bankruptcy, March 1999, ii.
The Federal Judiciary U.S. Bankruptcy Courts, “1987-2003 Fiscal Year Bankruptcy Filings by Chapter and District,” Feb. 3 2004.
Ibid.