The New York Times has a big article on state lotteries today, and the verdict isn’t good. North Carolina, as the state which has most recently started its own lottery, is featured prominently, and the results are not good. The end result is exactly what any economist would predict:
In reality, most of the money raised by lotteries is used simply to sustain the games themselves, including marketing, prizes and vendor commissions. And as lotteries compete for a small number of core players and try to persuade occasional customers to play more, nearly every state has increased, or is considering increasing, the size of its prizes — further shrinking the percentage of each dollar going to education and other programs.
Unsurprisingly, there’s already a name for this phenomenon: rent exhaustion.
Bottom line: lotteries don’t achieve much in terms of funding schools, are a regressive form of taxation, mislead voters into thinking that schools are mostly funded by lotteries and that taxes and bond issues to fund schools aren’t needed, and contribute to gambling addiction. Who ever thought they were a good idea in the first place?