Is the Lottery Good For State Budgets?

As a form of gambling, lottery is relatively benign, especially when compared with sports betting or casino games. Its players pay for a ticket, which is then redeemed for cash by state agencies or public corporations if they win. There are no specialized taxes or shady operators; the money that comes in from ticket sales goes straight into one giant pool, which the winner then draws from. It’s so common that most people don’t think of it as a form of gambling; instead, they see it as a way to win some money for their families. This may help to explain why the average American spends over $80 a year on tickets.

In 2021 alone, state and national lotteries generated more than $100 billion in revenue through the sale of lottery tickets. That makes it one of the largest business models in the world. But how meaningful that revenue is in broader state budgets, and whether the trade-off of citizens losing some of their own money is worth it, deserves some scrutiny.

The casting of lots to decide fates and to determine the awarding of material wealth has a long record in human history, including several instances in the Bible. But the modern practice of lotteries is fairly recent, with its origins in Europe in the 15th and 16th centuries. During this time, towns would hold lotteries to raise funds for municipal needs or to support the poor. The first European lottery to award prizes for money is believed to have been held in Bruges, Belgium in 1466.

State governments embraced the idea of a lottery in the immediate post-World War II period because they could use it to increase their range of services without raising onerous taxes on working and middle classes. The arrangement was hailed as “painless taxation.”

Lotteries have been an important source of revenue for states, but they’re not as good as they’re made out to be. For one thing, the lion’s share of lottery revenues go to specific constituencies: convenience store owners (who are often the lotteries’ primary vendors); lottery suppliers, who have been known to contribute heavily to state political campaigns; teachers (in those states in which lottery money is earmarked for education), and state legislators, who quickly become accustomed to the extra cash.

Moreover, the irrational hope that lottery winners will find a new life provides value to those who lose. Many people buy lottery tickets, even when they know that the chances of winning are minuscule. Those who lose should put the money that they spend on tickets into emergency savings or paying off credit card debt. That way they can enjoy a better quality of life and save their hard-earned income for more important things in the future. That is what’s really at stake when people are buying lottery tickets.