Lottery Revenues Help State Budgets


In the era of soaring deficits and declining state government revenues, a growing number of states are turning to lotteries to raise money. The popularity of the lottery has been a source of debate, with critics charging that it promotes addictive gambling behavior and imposes a substantial regressive tax on lower income people. Lottery proponents, however, argue that the money raised from the tickets supports important public programs and helps alleviate state budget woes.

While state governments are introducing new games, the basic structure of the lottery is consistent across the nation. Typically, the state legislates a monopoly for itself; establishes a public agency or corporation to run the lottery (as opposed to licensing a private firm in return for a share of profits); and begins operations with a modest number of relatively simple games. Over time, however, revenue growth has been fueled by innovations in advertising and promotion. The prize amounts of lotto jackpots have also grown to seemingly newsworthy proportions, generating additional interest in the games.

Nevertheless, lottery proceeds still account for a small percentage of overall state government spending, and the popularity of the lottery does not appear to be directly related to the health of a state’s fiscal position. As Clotfelter and Cook point out, “lotteries win broad public support in almost any fiscal circumstance.”

One of the key messages that lottery marketers rely on is to tell people that their ticket purchases contribute to a specific public good, such as education. This is especially effective in times of economic stress, when state governments are facing a looming fiscal crisis and potential tax increases or program cuts. This is a clear example of what economists call moral hazard: People behave in ways that they would not otherwise act because they feel compelled by a sense of responsibility to help others.

A large portion of the money that is not won as a prize ends up back with participating states. These funds are used in a variety of ways, including funding groups that help compulsive gamblers, enhancing the general fund to address budget shortfalls, and investing in infrastructure such as roadwork or police forces. In addition, some of this money is used to pay for the salaries and overhead costs of the lottery system.

Lottery critics charge that state governments are becoming dependent on lotto revenues and are therefore unable to manage a gambling industry that is prone to scandals and abuse. Others argue that lotteries increase the number of people who gamble and exacerbate problems like poverty, crime, and family instability.

The odds of winning the lottery are long, but you can improve your chances by choosing a combination of numbers that have not been played by many other people. In particular, you should avoid playing numbers that have sentimental value, such as those associated with your birth date or a birthday gift. You can also increase your chances of winning by purchasing more tickets, as each number has an equal chance of being selected.