The lottery is a form of gambling in which numbers are drawn for a prize. The first lotteries in the modern sense of the word were in 15th-century Burgundy and Flanders, with towns attempting to raise funds for town fortifications or to help the poor. In Italy, the lottery known as a ventura was held from 1476 under the auspices of the ruling d’Este family. Modern lotteries are regulated by laws that specify what prizes can be awarded, how they may be won, and when they must be held. In the United States, the Federal Trade Commission regulates state lotteries. Private lotteries are also popular in many countries.
Since New Hampshire introduced its state lottery in 1964, every state that has adopted a lottery has argued that the proceeds of the lottery will support some specific public good such as education. This argument has proven effective, winning broad public approval, and generating substantial revenues for the state. Lotteries have also developed extensive and specific constituencies, including convenience store operators (the primary vendors); lottery suppliers; teachers (in states in which the revenue is earmarked for them); state legislators; and teachers’ unions (which quickly become accustomed to the extra money).
However, despite the success of this argument, there are a number of problems with it. The primary issue is that the lottery does not provide a sufficient amount of revenue to cover its costs. State governments have to borrow funds, and the interest payments on those debts add up over time. It is therefore important for state policymakers to be honest with the public about how much the lottery will actually generate for the state.
Another problem is that the lottery has a negative expected value. While it is true that some people win big prizes, most lose money. Therefore, it is not a prudent way to spend one’s money, and state policymakers should make this clear to the public. The negative expected value of the lottery also teaches people to play with more care. They should only spend the money that they can afford to lose.
The popularity of the lottery has been fueled by its promise as a source of “painless” revenue, in which players voluntarily spend their money for the benefit of the public. This argument is especially appealing during times of economic stress, when the prospect of tax increases or cuts to public programs are a real concern. This is why the lottery has gained so much popularity in the United States, where taxes are relatively low compared to other countries. However, the popularity of the lottery has not correlated with a state’s actual fiscal health. As Clotfelter and Cook note, the state lottery’s widespread appeal is due in large part to its ability to generate significant revenues for a variety of purposes without imposing any burden on taxpayers. This article originally appeared in the Fall 2015 edition of our magazine, The Bottom Line. Subscribe today to get our latest articles delivered to your inbox.