Public Welfare Benefits of Lottery Revenues

Many people are drawn to lottery games, especially those like Powerball and Mega Millions that offer enormous jackpots. Those are the most popular lotteries, but many states offer other games as well. Lottery revenues are usually a small fraction of state government budgets, but they can help pay for programs that are too expensive to fund otherwise. However, a growing body of research suggests that there are important limits on the public welfare benefits of state-sponsored gambling.

Most of us know that lotteries are games of chance where the winning prize is awarded to a lucky winner. But there is a lot more to it than that. The games are often heavily marketed with the promise of instant wealth, and they may sway the decisions of some who would not otherwise gamble. In addition, the growth of the lottery may be partly driven by a sense of economic inequality and a new materialism that asserts anyone can get rich with sufficient effort or luck. The growth of the lottery in the 1980s was also fueled by popular anti-tax movements that led lawmakers to seek alternatives to raising taxes.

The first modern state lotteries started in the Northeast, states with relatively large social safety nets that perhaps needed extra revenue. The states saw the lottery as a way to avoid higher taxes on middle-class and working-class families and instead make it possible to provide services that might not be able to be financed otherwise.

Almost every state that has adopted a lottery now offers its own unique game, but there are some common elements. Most state lotteries involve a game of chance with a fixed jackpot amount, and the prize is allocated to a winner at some point in the future. The game is regulated by the state to ensure that winners are treated fairly, and prizes are distributed according to rules that are set and enforced by the lottery.

In the US, 44 states and the District of Columbia have lotteries. The six that do not — Alabama, Alaska, Hawaii, Mississippi, Utah and Nevada (the last is home to the Las Vegas gambling paradise) — have been motivated by religious concerns, the desire to avoid a conflict with private lotteries and a lack of fiscal urgency.

One thing that is consistent across all state lotteries is the pattern of revenues: They grow rapidly after a lottery’s introduction, level off and then decline. This pattern has led to a tendency for lottery officials to introduce new games in a quest to maintain or increase revenues.

Lotteries are often sold by retailers who are not required to report their earnings. Some of these sales agents buy tickets in bulk from the lottery and then sell them to customers, who can place very small stakes in them. This practice increases a retailer’s sales and profits, but it also distorts the true odds of winning. Harvard statistician Mark Glickman points out that many players choose numbers with sentimental value, such as their birthdays or ages, so they can’t be as likely to win as those who pick random sequences.