The Impact of the Lottery on State Budgets


The lottery is a popular way for state governments to raise revenue. People spend billions on tickets each year, and states claim that the money helps pay for education, health care, and other services. But what is the true impact of the lottery on state budgets, and is it a good use of public funds? The answer is complicated.

A lottery is a system for selecting winners in a competition that depends on chance, such as a sporting event or a business promotion. Modern lotteries take the form of a drawing for a prize based on the number of tickets sold, or in some cases just on the names of registered voters. In the strictest sense, lottery is gambling because payment of some consideration (money or property) is required for a chance to win.

State governments started to adopt lotteries in the immediate post-World War II period, when they were looking for new sources of revenue that could help expand their array of services without especially onerous taxes on middle and working class families. They also believed that the rise of illegal gambling was creating a “tax vacuum” for state governments. The idea was that if states promoted legal lotteries, the illegal activities would be driven underground and the state’s tax revenues would go up.

But the real impact of a lottery has much to do with the way that it is run as a business, and on the larger social context in which it operates. State lotteries are designed to maximize their revenues, and so advertising necessarily focuses on persuading target groups to spend money. As a result, state officials operate at cross-purposes with the general public interest.

Moreover, the way that lotteries are organized leaves them vulnerable to lobbying from a wide range of special interests. These include convenience store owners (the primary vendors); lottery suppliers (who make heavy contributions to state political campaigns); teachers (in states where a large share of lottery proceeds is earmarked for education); and many others.

All of these interests are legitimate, but they also obscure the fact that state lotteries are inherently harmful and should be abolished. The biggest danger is that by offering people the chance to become rich overnight, lotteries encourage irrational and risky gambling behavior. In addition, the social mobility that lotteries promise to promote is often limited by the reality of inequality and poverty. A better solution is to reform the lottery industry so that it is more in line with the needs of the broader population.