Why Some States Adopt Lotteries and others Don'T

Abstract

In 1963, New Hampshire reintroduced the state-sponsored lottery in the United States. By late 1986, more than half of the 50 states had lotteries in operation or had approved lotteries through referenda. Of the scholarly journal articles that have analyzed the economics of state lotteries, most have been concerned with the regressivity of the implicit lottery tax. In this article, we address the more important question of why any such regressive tax, especially one in the form of legalized gambling, would be adopted in lieu of higher sales, property, or income taxes. Using a model of rational legislator behavior developed from public choice theory, we generate and test empirical models that explain the pattern of lottery adoption across states and the timing of such adoptions. In general, a given state will have a higher probability of adopting a lottery as an alternative source of state revenue, and will tend to adopt a lottery earlier, the greater the overall tax burden on the voters of the state, the greater the expected return from a lottery in the form of spendable revenue, the greater the difficulty in raising tax rates on other bases, and the fewer the number of poor people in the state.