Lottery Advertising and Regressive Spending

Lottery is a classic example of what economists call regressive spending: it takes a greater share of income from lower-income people than it gives back. It also discourages other forms of spending that might improve their lives, such as education or healthcare. Moreover, it undermines the sense of fairness and equity that society has long cherished. But most of all, it lulls people into an unrealistic fantasy that they will become rich through their own efforts, obscuring the reality that wealth is usually created by a combination of hard work and luck.

Lotteries are an ancient pastime, as attested by everything from Nero’s love of them to their presence in the Bible (where they were used for all sorts of things, including determining the distribution of Jesus’s garments). But the modern state-run lottery is something quite different. It’s an enormously profitable enterprise, and the state governments that run it have a powerful incentive to maintain the momentum of its popularity. They know that it has a built-in audience, and they use that audience’s psychology to their advantage: the lottery is an addictive form of gambling.

The modern lottery has its origins in the post-World War II era, when states were looking for ways to fund their social safety nets without angering an increasingly anti-tax electorate. Politicians argued that the lottery would give them hundreds of millions in revenue, thereby allowing them to avoid raising taxes or cutting services. Cohen writes that “the lottery appeared to be a budgetary miracle, an opportunity for politicians to make money appear magically out of thin air.”

But the real motivation for states to adopt lotteries was less ideological than financial. As they did with other types of gambling, they saw the lottery as a way to extract tax dollars from people voluntarily, rather than imposing them through onerous state taxes.

In the early years of the modern lottery era, revenues were explosive but soon leveled off and eventually declined. The decline was largely due to the introduction of new games, most of them scratch-off tickets, which offer smaller prizes but higher odds than traditional lottery drawings.

These innovations changed the nature of the game, but they also obscured the regressivity and skewed spending patterns. Traditionally, lottery advertising has been focused on promoting the fun of playing. The ads show people having a blast with the game, and they’re meant to convey that anyone can be lucky. But the regressivity of lottery spending is still there, and it’s hard to miss.

The lottery is a regressive tax on poor people, but it’s not as bad as some other taxes. And the wealthy do play it, too—they spend, on average, about a tenth of their incomes on tickets each year. They may be less likely to win the jackpot than poor people, but they’re no less committed to the hobby. In fact, they’re more committed to it than the poorest players. They buy more tickets, and they’re more likely to have complex quote-unquote systems of buying their tickets at certain stores or at particular times of day.