Is the Lottery an Efficient Source of Public Revenue?
Almost every state in the United States has a lottery, a popular form of gambling in which numbered tickets are sold for the chance to win a prize based on the number of winning numbers. Lottery games are popular with people of all ages and backgrounds, but they can be addictive and have serious consequences for those who become hooked on them. Many people spend billions of dollars on lottery tickets each year, and a large percentage of the funds raised are spent by government at all levels. In an anti-tax era, government officials at every level have come to depend on lottery revenues and are constantly under pressure to increase them.
But is a lottery really an efficient source of public revenue? In order to make a judgment about this, it is necessary to understand how the lottery works. Most people buy lottery tickets for entertainment value, and the money they invest in a ticket is a sacrifice of their future utility. If the expected utility from the monetary loss is higher than the cost of the ticket, then the purchase represents a rational decision for them. The problem is that the lottery is often portrayed as something different, in which the money invested is not a sacrifice but a way to win big money without work or risk.
Although some people do win huge sums, most players lose far more than they gain. As a result, most lottery participants as a group contribute billions to government revenues that they could have saved for retirement or college tuition. This is not necessarily a bad thing; it just means that the government must spend more than it would have otherwise had to, which may or may not be in its best interests.
In addition to these costs, lottery revenues are often a target of political attacks. For example, critics frequently argue that the money spent on lottery tickets would be better spent on education or health care. However, this argument ignores the fact that a lottery is essentially a tax on people who would not otherwise gamble. Moreover, it is not clear that the money that is lost by lottery players is more than offset by the benefits of the programs funded with the proceeds of the lottery.
Nevertheless, a lottery is a successful model for raising money. The most important challenge is to decide whether it is appropriate for a government to promote gambling for its own purposes. If it does, the key question is to determine how much of a sacrifice people are willing to make for a small probability of a substantial gain. Ultimately, it is up to voters and politicians to decide if promoting a form of gambling is in the public interest. The answers to these questions are not necessarily easy. But they are certainly worth considering. -Cloyd Clotfelter and Joshua Cook, “The Public Benefits of a Lottery,” Journal of Economic Literature, Vol. 50, No. 2 (October 2011), pp. 417-444.
