Inequality and Gambling in Italian Municipalities

This study investigates the relationship between urban inequality and gambling on a distinct dataset that encompasses administrative records of gambling turnover by game type in Italian municipalities. We find a substantive impact of urban inequality on gambling turnover, using ordinary least squares estimates that control directly for poverty; we interpret the relationship causally under a selection-on-observables argument bounded by an Oster (2019) coefficient-stability test and corroborate its sign and relevance, though not its magnitude, with a shift-share instrumental-variable strategy. Moreover, we show that the impact of inequality is additional and larger than that of poverty. Finally, inequality promotes gambling particularly in less well-off Southern municipalities, especially concerning turnover generated from games closely associated with gambling-related issues. Given the documented regressive nature of gambling taxation, our results are consistent with a self-reinforcing dynamic between urban inequality and gambling, whereby rising inequality stimulates gambling demand among disadvantaged households whose gambling expenditures, taxed regressively, may in turn widen the income distribution further—a mechanism we flag as an important avenue for future research.