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

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

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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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. 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, vol. 61(4), pages 513-26, November.
  2. Lo, Melody & Sawyer, W. Charles & Sprinkle, Richard L., 2007. "The link between economic development and the income elasticity of import demand," Journal of Policy Modeling, Elsevier, vol. 29(1), pages 133-140.
  3. Charles T. Clotfelter & Philip J. Cook, 1987. "Implicit Taxation in Lottery Finance," NBER Working Papers 2246, National Bureau of Economic Research, Inc.
  4. Philip J. Cook & Charles T. Clotfelter, 1991. "The Peculiar Scale Economies of Lotto," NBER Working Papers 3766, National Bureau of Economic Research, Inc.
  5. Quiggin, John, 1991. "On the Optimal Design of Lotteries," Economica, London School of Economics and Political Science, vol. 58(229), pages 1-16, February.
  6. Alm, James & McKee, Michael J. & Skidmore, Mark, 1993. "Fiscal Pressure, Tax Competition, and the Introduction of State Lotteries," National Tax Journal, National Tax Association, vol. 46(4), pages 463-76, December.
  7. Forrest, David & Gulley, O. David & Simmons, Robert, 2000. "Elasticity of Demand for UK National Lottery Tickets," National Tax Journal, National Tax Association, vol. 53(n. 4), pages 853-64, December.
  8. Garrett, Thomas A. & Sobel, Russell S., 1999. "Gamblers favor skewness, not risk: Further evidence from United States' lottery games," Economics Letters, Elsevier, vol. 63(1), pages 85-90, April.
  9. 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, vol. 32(4), pages 501-519, July.
  10. Ann Hansen, 1995. "The Tax Incidence of the Colorado State Lottery Instant Game," Public Finance Review, , vol. 23(3), pages 385-398, July.
  11. 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, vol. 52(n. 4), pages 741-52, December.
  12. Mikesell, John L., 1994. "State Lottery Sales and Economic Activity," National Tax Journal, National Tax Association, vol. 47(1), pages 165-71, March.
  13. Tosun, Mehmet Serkan & Skidmore, Mark, 2004. "Interstate Competition and State Lottery Revenues," National Tax Journal, National Tax Association, vol. 57(2), pages 163-78, June.
  14. Donald S. Elliott & John C. Navin, 2002. "Has Riverboat Gambling Reduced State Lottery Revenue?," Public Finance Review, , vol. 30(3), pages 235-247, May.
  15. Melissa Schettini Kearney, 2002. "State Lotteries and Consumer Behavior," NBER Working Papers 9330, National Bureau of Economic Research, Inc.
  16. 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.
  17. 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, vol. 49(4), pages 535-52, December.
  18. Oster, Emily, 2004. "Are All Lotteries Regressive? Evidence from the Powerball," National Tax Journal, National Tax Association, vol. 57(2), pages 179-87, June.
  19. 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, issue May, pages 165-180.
  20. Scott, Frank & Garen, John, 1994. "Probability of purchase, amount of purchase, and the demographic incidence of the lottery tax," Journal of Public Economics, Elsevier, vol. 54(1), pages 121-143, May.
  21. Olney, Martha L., 1990. "Demand for consumer durable goods in 20th century America," Explorations in Economic History, Elsevier, vol. 27(3), pages 322-349, July.
  22. Charles T. Clotfelter & Philip J. Cook, 1989. "Selling Hope: State Lotteries in America," NBER Books, National Bureau of Economic Research, Inc, number clot89-1, October.
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