How Governments Manage Lottery Revenues

The casting of lots to determine fortunes has a long history, going back at least to biblical times. But the lottery as a method for allocating prizes to players is more recent, being introduced in modern times by governments. State lotteries are a major source of income for many states and, in an anti-tax era, there is constant pressure to increase those revenues. But this makes the issue of how governments manage these activities even more difficult.

The financial lottery, as it is commonly called, involves paying a small amount of money to be randomly selected for a larger prize. A player might purchase a ticket for a lump sum of cash or choose to be paid in installments over a period of time. The chances of winning are very low, but many people play for the fun of it. The prizes vary, but a large proportion of the tickets are purchased by people with very low incomes. These players tend to be lower-educated, nonwhite, and male, and they disproportionately spend large amounts of their incomes on tickets.

Some states have argued that the profits from state lotteries should be devoted to some sort of public benefit, such as education. But studies have shown that the actual fiscal circumstances of the state government have little bearing on public approval of lotteries. Instead, public approval seems to depend primarily on how the lottery proceeds are portrayed. In addition to the broader message of “fun,” there is often a specific appeal to convenience store operators (for whom the lottery is an important revenue source); suppliers of the state’s lottery equipment (for which they make substantial contributions to state political campaigns); teachers (in those states in which lottery revenues are earmarked for education); and other groups.