Lottery Taxes and Public Goods

Lottery is a form of gambling in which people buy tickets with a chance to win a prize. While lottery participants have been criticized as engaging in addictive gambling, some of the proceeds from the games are used for public purposes.

Lotteries typically gain broad approval from state governments and their constituents, even when a state’s fiscal condition is relatively strong. A key element in winning this approval is the perception that lottery proceeds benefit a specific public good, such as education. However, research suggests that the actual fiscal health of a state government and the prospects of tax increases or cuts to publicly funded programs have little bearing on whether or when a state adopts a lottery.

Once a lottery is in place, revenues generally expand rapidly. But after a few years of growth, they plateau and sometimes decline. Lottery marketers respond to this slowdown by introducing new games and increasing advertising expenditures.

The result is that, in addition to the normal risks associated with all forms of gambling, lottery marketing promotes compulsive gambling and has a regressive effect on lower-income households.

Some studies suggest that those with lower incomes gamble more heavily on the lottery than do those with higher incomes, despite the fact that their odds of winning are long. But others point to a more fundamental problem: that, as an implicit government tax on consumers, the lottery is inherently regressive.