Lottery As a Source of State Revenue

Lottery is a form of gambling in which numbers are drawn to determine a winner. Prize money may be cash or goods, services, or even property. In addition to the entertainment value, people often play the lottery for social prestige, or as a way to finance charitable endeavors. It is generally illegal to sell tickets for purely commercial purposes, so state-sponsored lotteries operate under the auspices of government. Nevertheless, lotteries are highly profitable enterprises that are designed to keep customers hooked. In this way, they are not much different from tobacco companies or video-game manufacturers.

The casting of lots for a decision or a fate is of considerable antiquity, but a lottery as a source of state revenue has only a short history. It began in the seventeenth century in Europe, where it was a popular way to raise funds for public projects, notably canals and bridges. In colonial America, it played a crucial role in financing both private and public ventures. In the 1740s, Harvard and Princeton were financed with lotteries, while the Continental Congress used one to raise money for the Revolutionary War.

In the modern era, Cohen argues, the lottery took on a different incarnation. During the prosperous post-World War II period, states were able to expand their array of services without imposing too great an additional burden on their working and middle classes. But by the nineteen-sixties, population growth, inflation, and the cost of the Vietnam War had combined to make balancing the budget a major challenge for many states. Raising taxes would be unpopular, and cutting services was undesirable.

For politicians confronting this challenge, the lottery appeared to be a perfect solution. It was a new source of revenue that would allow states to maintain their service levels while avoiding the political firestorm of raising taxes. This was the argument that proponents of the lottery made in New Hampshire in 1964 and other states soon afterward.

But the argument failed. Instead of promising that a lottery float could fund most state budgets, advocates started to promote it as a way to fund a single line item. This was a more politically palatable proposition, and it allowed them to frame the issue in terms that appealed to voters’ sense of fairness. Lottery advocates were able to argue that by voting for the lottery, citizens were not voting for gambling but for a specific service—usually education or veterans’ benefits.

Even so, the lottery’s economics are complex and troubling. Lottery sales are closely tied to economic fluctuations: As incomes fall, unemployment rises, and poverty rates increase, lottery sales burgeon. And like all commercial products, lottery advertising is targeted to attract the most profitable demographics. This is why the lottery is heavily promoted in neighborhoods that are disproportionately poor, Black, or Latino. Ultimately, however, the lottery’s success depends on the psychological pull of its improbable hope. For the majority of players, that sliver of hope is enough to overcome the disutility of monetary loss and entice them to buy another ticket.