Does the Lottery Make a Difference in State Budgets?

Lottery is America’s favorite form of gambling, and states promote it as a way to raise revenues. But the question is whether that revenue makes much difference in broader state budgets and, if so, whether it is worth the trade-off of people losing money.

Lotteries are a way for governments to distribute prizes according to chance, typically by drawing lots. They can also be a means of allocating public resources (see public lottery). Lottery games are popular in most countries and are generally well-regulated, with state or private companies running the draws. In some cases, the prizes are small and the odds of winning are high, but in others the jackpots can be large or even life-changing.

The modern incarnation of the lottery began in the United States in the nineteen sixties, when growing awareness of all the money to be made in the gambling business collided with a crisis in state funding. With rising inflation and the cost of the Vietnam War, the ability of states to maintain a social safety net became increasingly problematic. In many cases, balancing the budget meant raising taxes or cutting services—both unpopular choices with voters.

State lotteries provided an alternative source of revenue, allowing politicians to avoid tax increases while still providing necessary services. The success of the lottery was such that it soon spread to every state. New Hampshire initiated the modern era of state lotteries with its 1964 introduction, and the rest followed suit, largely following the same path: a state legislates a monopoly; sets up an agency or public corporation to run the lottery (instead of licensing a private firm in return for a share of the profits); begins operations with a modest number of relatively simple games; and, due to the constant pressure to generate additional revenues, progressively expands the portfolio of games offered.

A key aspect of the lottery that attracts potential customers is its apparent link to a good cause. Whether by convincing them that the proceeds will benefit education or to help people overcome poverty, this argument is often effective at winning and retaining public approval. However, studies show that the popularity of a state’s lottery does not correlate to its actual fiscal health. It is more likely that a lottery is adopted in the first place, and then wins broad support, because of a desire to increase state spending on a particular program.

In addition to promoting a particular good, the lottery also attracts consumers through its promise of big-ticket prizes. This is a major driver of ticket sales, particularly for rollover drawings with apparently newsworthy jackpots. While there are many stories of lottery winners who use their prizes for a variety of purposes, the risks inherent in such a large sum can be considerable. Some of the most dramatic examples include Abraham Shakespeare, who was kidnapped and killed after winning a $31 million jackpot, and Jeffrey Dampier, who was murdered by his sister-in-law after winning a comparatively tame $1 million.