NCPA - National Center for Policy Analysis

State Sponsored Gambling Amounts to a Regressive Tax

November 22, 2002

State-sponsored lotteries, slot machines and other gambling opportunities may increase as states suffering tax shortfalls and budget deficits look for easy sources of new revenue. Some argue that state-sponsored gambling simply gives the local government the profits that otherwise would have gone to other states or to the illegal gambling industry.

Opponents respond that revenues derived from gambling take money that families otherwise would have spent on other kinds of consumption and that it affects the poor more than the rich. Thus these "voluntary taxes" are highly regressive.

For instance, a recent study found:

  • When a state lottery is introduced, the probability that an adult will engage in some kind of gambling increases by 50 percentage points, but there is no decline in participation in racetrack, bingo, private or unlicensed gambling.
  • On average, households displace nearly 2 percent of their consumption expenditures with state lottery ticket purchases -- more if no neighboring state has a lottery and less if neighboring states have a lottery.
  • The poorest households, those in the bottom third of income, reduce consumption spending the most, nearly 3 percent, including spending on food, mortgage, rent and other home costs.
  • The poor spend about $165 per adult per year on lottery tickets, about as much as those who are better off, so they spend a much larger share of their income on state lotteries.

Furthermore, the poorly educated spend more on gambling than the better educated. And blacks spend much more on the lottery than whites or Hispanics.

Source: Bernard Wasow, "Soaking the Poor: The Incidence of State-Sponsored Gambling," Issue Brief, November 14, 20002, Century Foundation; based on Melissa Kearney (Wellesley College), "State Lotteries and Consumer Behavior," Working Paper No. 9330, November 2002, National Bureau of Economic Research.

For NBER text

http://papers.nber.org/papers/W9330

 

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