The Hidden Costs of Lottery Adoption

In the United States, lotteries raise billions of dollars each year. They are a form of gambling in which people pay a small amount to have a chance to win a large prize. Many of these prizes are financial, but some are for other things such as units in a subsidized housing block or kindergarten placements at a reputable school. Regardless of the type of lottery, however, all lotteries share the same basic structure. The arguments for and against their adoption, the way in which they are structured, and how they evolve over time are remarkably similar.

In their marketing, state lotteries rely on two messages primarily. One is that playing the lottery is a fun and satisfying experience and the other is that winning is possible, even for those who do not have much money to spare. Both of these messages obscure the regressivity of the lottery and entice people to spend a significant portion of their incomes on tickets.

The roots of lotteries date back to ancient times. The Old Testament instructed Moses to use lotteries to divide land among the people, and the Roman emperors used them to give away property and slaves during Saturnalian feasts and other entertainments. Lotteries are also a common feature of medieval Europe. The records of several towns show that they were used to raise money for a variety of purposes, including town fortifications and the poor.

Today, state governments adopt lotteries mainly to raise revenue for public purposes. Their popularity is often based on the fact that lotteries are perceived as “painless” taxes because players voluntarily contribute their money. This argument is especially effective during times of economic stress, when voters want to avoid taxes and politicians are seeking ways to increase state budgets without increasing overall tax rates.

It is a mistake to view lottery sales and revenues as a source of public funds that are free of any external costs. In reality, these resources have a cost to the taxpayers that is in addition to the money that they spend on the tickets themselves. The costs include the opportunity cost of lost productivity resulting from fewer public services and the cost of advertising promoting the lottery.

Another hidden cost is that the lottery undermines social mobility by concentrating wealth in a small number of families and by reducing the likelihood that those families will pass their wealth on to future generations. In addition, the lottery is an extremely regressive instrument in terms of the distribution of its prizes. The vast majority of its revenue comes from middle- and upper-income neighborhoods, while the poor play at disproportionately low levels.

The regressive nature of the lottery can be traced to its evolution over time. State lotteries are a classic example of a public policy that is established piecemeal and incrementally with little or no general overview. As a result, few, if any, states have a coherent gambling or lottery policy.