The Lottery and Its Impact on State Budgets and Education Policy

The lottery is a fixture of American society, with people spending upwards of $100 billion on tickets each year. Despite its ubiquity, few people know how much money it actually raises for states, or what that revenue is used for. The vast majority of lottery proceeds are spent on education, but critics argue that lottery money is often misused or misallocated. This article looks at the lottery, its history, and its impact on state budgets and education policy.

The casting of lots for material gain has a long record in human history, including several cases in the Bible, but lotteries themselves are relatively new. They first emerged in the Low Countries in the fifteenth century, raising funds for town fortifications and charity for the poor. In America, Benjamin Franklin sponsored a lottery to raise funds for cannons in the Revolutionary War and Thomas Jefferson promoted a private one in Virginia to relieve his crushing debts.

As with all commercial products, there are many different reasons for buying a lottery ticket. Some people buy a ticket simply because they enjoy the entertainment value of seeing the numbers roll in, even though they understand how unlikely it is that they will win. In such a case, the disutility of a monetary loss is outweighed by the entertainment and other non-monetary benefits.

Others buy a ticket because it’s a way to feel like they did something worthwhile with their money. State-sponsored lotteries often market themselves as a way to do good while helping the economy. In fact, as Clotfelter and Cook report, lottery sales are highly responsive to economic fluctuations: ticket purchases increase as unemployment rates rise or income tax rates fall, but they also increase in areas where teachers are in short supply and poverty rates are high.

In addition, lottery marketing campaigns are designed to appeal to specific groups of people. Convenience store operators, for example, make a good living selling state-sponsored lotteries; suppliers of lottery merchandise are often heavy contributors to state political campaigns; and the employees of educational institutions, especially colleges and universities, benefit from lottery sponsorship. These are the primary constituencies that are targeted by state governments, but a great deal of lottery money goes to pay for things like roads and prisons that don’t directly benefit any particular group.

Those who promote lotteries are aware of the risks involved, but they argue that their popularity is justified because of how important state government needs are and because people enjoy playing them. This argument, however, is a bit misleading. The evidence suggests that lottery sales are primarily responsive to economic fluctuations and that the societal costs are enormous. The truth is that, if the state wants to subsidize gambling, it should limit the number of games and ensure that they are distributed fairly. But it should not use lottery proceeds to subsidize other forms of gambling. And it should avoid claiming that lottery revenues are a necessary part of any state’s fiscal health, given the regressivity of lottery spending.