STATE LOTTERY SALES AND ECONOMIC-ACTIVITY

American state lottery sales growth slowed dramatically in the recent recession compared with the experience of the last decade. Evidence fr om pooled quarterly per capita sales data for lottery states from the end of 1983 through 1991 shows a high real income elasticity relative to other state revenues, around 3.9. Furthermore, lottery sales are se nsitive to changes in the state unemployment rate, increasing by about 0.17 percent for each one percent increase in that rate. For instance , an increase in unemployment from 4 to 5 percent would be associated with around a 4.25 percent increase in quarterly lottery sales, other influences unchanged. That pattern is consistent with the hypothesis t hat in recession people find more attractive the small chance of winni ng a huge lottery prize for the low ticket price. The unemployment rat e relationship works as partial offset to the income relationship. The analysis also finds lower lottery sales where states rely less on lot to in the game portfolio and that sales decay with lottery age, althou gh sales flatten as the lottery matures. Combining all influences, per capita real sales would be expected to flatten out as economic expans ion continues.