AN ECONOMIC APPRAISAL OF STATE LOTTERIES

Abstract

This paper examines lotteries in terms of broad considerations of economic efficiency and incidence. A state lottery simultaneously creates a consumption good and taxes that good. The creation activity produces an efficiency gain which is only partly erased by the tax. To measure the incidence of the tax revenue collected, the distribution of lottery purchases across income classes is examined. Five sets of data are presented, and each confirms the regressivity of the lottery tax revenues.