Is the Lottery a Worthwhile Tax Revenue Generator?


A lottery is a game in which the prize money is determined by drawing numbers or other symbols. It is a form of gambling, but one with an important difference: the state controls it and sets its rules. Those rules are designed to maximize participation and revenues, so that the prize money is as high as possible, while minimizing costs and other social harms. Many people play the lottery for a little excitement, while others see it as a way to improve their lives. But whether the lottery is a worthwhile endeavor for taxpayers is an open question.

The idea of distributing property or goods through lotteries has been around for centuries, and it appears in the Bible (Numbers 26:55-56). In modern times, the lottery is a popular source of tax revenue in many states, and the practice has generated both controversy and enthusiasm among politicians and citizens.

There are a number of ways to organize a lottery, and the precise details vary from state to state, but most lotteries follow a similar pattern: the state legislates a monopoly for itself; establishes a public agency or corporation to run the lottery (as opposed to licensing a private firm in exchange for a share of profits); begins operations with a modest number of relatively simple games; and, due to constant pressure for additional revenues, progressively expands the number and complexity of the games offered. The expansion is often accompanied by increased marketing and promotion.

Some states use their lotteries to raise funds for a variety of programs and services, from education to infrastructure. Others use them to encourage participation in other activities, such as recreation or health and fitness. Still other states rely on lotteries to replace taxes that they think are socially harmful. These include sin taxes on tobacco and alcohol, which have been used for centuries to raise revenue while discouraging certain behaviors.

In the United States, lotteries were first introduced in 1964 and are currently legal in 37 states. The early lotteries were much like traditional raffles, with participants buying tickets that would be drawn at a future date—often weeks or months out. But in the 1970s, a series of innovations transformed the industry. The introduction of “instant games,” such as scratch-off tickets, reduced the wait between purchase and prize delivery, and boosted revenues.

The popularity of the lottery continues to grow, with people spending billions on tickets each week in the United States alone. Although critics point out that the lottery can lead to compulsive gambling, few question the value of this source of tax revenue. It is hard to argue that the government should be in the business of promoting vice, and it is fair to note that the social harms associated with gambling are not as severe as those caused by other forms of vice—alcohol and tobacco. Nevertheless, many people have an inextricable urge to gamble, and that shouldn’t be ignored.