Lotto Nothing? The Budgetary Impact of State Lotteries

Alan C. Marco, Vassar College
Jonathan C. Rork, Georgia State University

Abstract

Lottery revenues are often touted as an independent revenue source for states. Using 32 years of state financial data, we demonstrate the fallacy of such thinking. Being the first to control for the self-selection of being a lottery state, we find that overall tax revenues decline with increased lottery sales. Moreover, we discover that this decline is driven by a decrease in revenues from general sales and excise taxes, which is only partially offset by increases in income tax receipts. We attribute such findings to a combination of behavioral and political responses following the lottery’s implementation.