Taking a Chance with a Remedy for Fiscal Failure: A Policy Analysis of State Lotteries

Abstract

Fame ... fortune ... "the stuff dreams are made of' ... state lotteries are often described as a fabulous opportunity to live the Cinderella dream, but beyond all the fun and fantasy state lotteries are a serious business. A state's objective in offering a lottery is not to hold a charitable giveaway or to provide an entertainment service. Lotteries are structured with the primary goal of maximizing net revenue. Due to the manner in which state lotteries are promoted and taxed they deserve special attention. Today state lotteries represent one of the most widely and conveniently available forms of commercial gambling available. Critics often argue that within the context of standard tax analysis lotteries exhibit many problems. Lotteries do not do well on the revenue adequacy standard. Numerous studies have also demonstrated that state lotteries are a regressive form of raising revenue (29, p. 4). Beyond the tax analysis lie claims that there are limits to lottery growth and that the revenue raised by state lotteries is not really being spent on the programs for which it has been designated. Currently, public opinion is in favor of state lotteries. People view them as a harmless way to avoid a tax hike. The full impact and implications surrounding the state's promotion of gambling are often overlooked when state's adopt the lottery as a method of raising revenue.