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Inter–temporal Differences in the Income Elasticity of Demand for Lottery Tickets

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  • Garrett, Thomas A.
  • Coughlin, Cletus C.

Abstract

We estimate annual income elasticities of demand for lottery tickets using county–level panel data for three states and find that the income elasticity of demand (and, thus, the tax burden) for lottery tickets has changed over time. This is due to changes in a state’s lottery game portfolio and the growth in consumer income more so than competition from alternative gambling opportunities. Trends in the income elasticity for instant and online lottery games appear to be different. Our results raise doubts about the long–term growth potential of lottery revenue and have policy implications for state governments and those concerned about regressivity.

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Bibliographic Info

Article provided by National Tax Association in its journal National Tax Journal.

Volume (Year): 62 (2009)
Issue (Month): 1 (March)
Pages: 77-99

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Handle: RePEc:ntj:journl:v:62:y:2009:i:1:p:77-99

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  1. Mary O. Borg & Paul M. Mason & Stephen L. Shapiro, 1993. "The Cross Effects of Lottery Taxes On Alternative State Tax Revenue," Public Finance Review, , , vol. 21(2), pages 123-140, April.
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  4. Farrell, Lisa & Morgenroth, Edgar & Walker, Ian, 1999. " A Time Series Analysis of U.K. Lottery Sales: Long and Short Run Price Elasticities," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, Department of Economics, University of Oxford, vol. 61(4), pages 513-26, November.
  5. Garrett, Thomas A. & Sobel, Russell S., 1999. "Gamblers favor skewness, not risk: Further evidence from United States' lottery games," Economics Letters, Elsevier, Elsevier, vol. 63(1), pages 85-90, April.
  6. Oster, Emily, 2004. "Are All Lotteries Regressive? Evidence from the Powerball," National Tax Journal, National Tax Association, National Tax Association, vol. 57(2), pages 179-87, June.
  7. Price, Donald I. & Novak, E. Shawn, 1999. "The Tax Incidence of Three Texas Lottery Games: Regressivity, Race, and Education," National Tax Journal, National Tax Association, National Tax Association, vol. 52(n. 4), pages 741-52, December.
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  13. Cletus C. Coughlin & Thomas A. Garrett & Rubén Hernández-Murillo, 2006. "The geography, economics, and politics of lottery adoption," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue May, pages 165-180.
  14. Sobel, Russell S. & Holcombe, Randall G., 1996. "Measuring the Growth and Variability of Tax Bases over the Business Cycle," National Tax Journal, National Tax Association, National Tax Association, vol. 49(4), pages 535-52, December.
  15. Donald S. Elliott & John C. Navin, 2002. "Has Riverboat Gambling Reduced State Lottery Revenue?," Public Finance Review, , , vol. 30(3), pages 235-247, May.
  16. Cook, Philip J & Clotfelter, Charles T, 1993. "The Peculiar Scale Economies of Lotto," American Economic Review, American Economic Association, American Economic Association, vol. 83(3), pages 634-43, June.
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  18. Garrett, Thomas A. & Marsh, Thomas L., 2002. "The revenue impacts of cross-border lottery shopping in the presence of spatial autocorrelation," Regional Science and Urban Economics, Elsevier, Elsevier, vol. 32(4), pages 501-519, July.
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Cited by:
  1. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: An Annotated Bibliography," Working Papers, College of the Holy Cross, Department of Economics 1110, College of the Holy Cross, Department of Economics.
  2. Kent Grote & Victor Matheson, 2011. "The Economics of Lotteries: A Survey of the Literature," Working Papers, College of the Holy Cross, Department of Economics 1109, College of the Holy Cross, Department of Economics.
  3. Thomas A. Garrett, 2011. "A closer look at the tax incidence of instant lottery games: an analysis by price point," Working Papers, Federal Reserve Bank of St. Louis 2011-010, Federal Reserve Bank of St. Louis.
  4. William F. Fox, 2010. "Can state and local governments rely on alternative tax sources?," Regional Economic Development, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Oct, pages 88-101.
  5. Cletus C. Coughlin & Thomas A. Garrett, 2008. "Income and lottery sales: transfers trump income from work and wealth," Working Papers, Federal Reserve Bank of St. Louis 2008-004, Federal Reserve Bank of St. Louis.
  6. Thomas A. Garrett & Natalia Kolesnikova, 2010. "Local price variation and the tax incidence of state lotteries," Working Papers, Federal Reserve Bank of St. Louis 2010-035, Federal Reserve Bank of St. Louis.
  7. Kent Grote & Victor Matheson, 2013. "The Impact of State Lotteries and Casinos on State Bankruptcy Filings," Working Papers, College of the Holy Cross, Department of Economics 1302, College of the Holy Cross, Department of Economics.

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