Lottery Revenue – Is it Worth the Social Costs?


People spent upward of $100 billion on lottery tickets in 2021, making it America’s most popular form of gambling. But how much good this revenue does for states and whether it’s worth the social costs of encouraging people to spend irrationally on a long shot at instant riches is something that state leaders don’t talk about very often.

The public has long held a fascination with chance, and lotteries have provided an easy way for governments to tap into this interest while avoiding the political pitfalls of taxing sinful activities like alcohol and tobacco. In fact, state governments have even defended the introduction of lotteries as a “tax-free alternative.”

Lottery revenues are used to fund all sorts of public projects and programs, from roads and schools to parks and hospitals. The state-owned Staatsloterij, for instance, is the oldest continuously operating lottery in the world. It was established in 1726.

The popularity of the lottery is often attributed to its ability to raise money for public purposes without raising taxes, a particularly attractive argument in times of economic distress. But studies have found that this is a false correlation: Lotteries win broad public approval even when a state’s fiscal situation is healthy.

What’s more, lottery revenues have a tendency to spike shortly after a state adopts a lottery but then level off or even decline. This has led to a constant stream of innovations from the industry in an attempt to keep the public interested, ranging from scratch-off tickets to video poker.

But it’s important to remember that the state doesn’t actually benefit all that much from these innovations, at least not in the short run. The vast majority of lottery funds go to paying prizes and other expenses, not to covering the cost of running the lottery itself. In addition, the more games a lottery offers, the lower the odds of winning.

This is a major problem because people will naturally gravitate toward the games with higher prize amounts, which are typically advertised on billboards and television commercials. These types of advertisements are designed to maximize the amount of money the lottery can get from each ticket sold, and that’s exactly what they do.

Lotteries also rely on the “moral hazard” argument, which is essentially that because people are losing their money they should feel compelled to buy more tickets to make up for it. This is a dangerous argument, however, because it gives state officials a free pass to ignore the fact that they’re enticing millions of people to spend more on a game with a much lower probability of winning than any other type of gambling. And when people are spending so much on lottery tickets, they need to know the odds they’re facing. The more information they have, the more likely they are to make wise choices. Unfortunately, most lotteries don’t provide much of that information. Until this changes, it’s time to put the brakes on the proliferation of lotteries in our country.