The Hidden Costs of the Lottery


As the oldest and most popular form of state gambling, lottery games are a familiar part of American life. They raise millions of dollars for public services, from education to road repairs, and despite their often-negative reputation as addictive, compulsive gambling, the majority of Americans play them. But the lottery is also a big business that generates considerable profit, and that profit comes with hidden costs. These include the social harms that are caused by state-run lotteries, as well as the ways in which lottery proceeds are used and distributed.

Lotteries are a classic example of how state policy is made piecemeal and incrementally, without the benefit of any overall context or overview. The establishment of a lottery typically involves a legislative decision to grant a government monopoly over the games; a state agency or public corporation is then established to run them; they begin operations with a modest number of relatively simple games; and, due to constant pressure for revenue increases, they subsequently expand into a variety of different formats and game types.

Until the 1970s, most states had little more than traditional raffles: people bought tickets for a drawing at some future date (often weeks or months away), and the winnings were usually modest – in the range of hundreds of dollars compared to the millions that are now offered. But innovation quickly transformed the industry. Lottery promoters introduced instant games that gave players the chance to win small amounts immediately by matching a series of numbers. These games increased sales substantially, and soon the jackpots for the main games began to grow.

By the mid-2000s, most states sold multiple-ticket games that allowed players to choose their own numbers in a range of combinations. As these games became more popular, they attracted a much wider pool of potential players, including those who were formerly reluctant to try their luck. In the process, they created a more diverse player base and increased the odds of winning the top prize, which in turn drove up the prize money that was on offer.

While the popularity of lottery games has soared, the overall level of state revenues has not. The primary argument used in favor of the lottery has always been its value as a source of “painless” revenue: it is a form of taxation that does not increase taxes on the general population or cut essential state services. But studies have shown that this argument does not stand up to scrutiny, and that the lottery is no substitute for a coherent taxation system.

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