The Incidence of State Lottery Taxes

Abstract

The price of a lottery ticket consists of two components, the production cost of the ticket and an excise tax. This tax is an approximately constant proportion of ticket price and is fully shifted to the consumer. Hence the ratio of tax to income is a multiple of the expenditures-income ratio. Data from the Pennsylvania state lottery were used to estimate the relationships between lottery expenditures and income, age, race, education, and city residence. It is concluded that the excise tax on lotteries is moderately regressive, representing much less than one percent of income at all income levels.