The tax incidence of lotteries: Evidence from five states

The nature of revenue generation for state-sponsored lotteries has been an issue of public debate for quite some time. although most studies have foun d lotteries to have a regressive tax incidence, several have concluded othe rwise. Unfortunately, the vast majority of academic studies address this co ncern by examining the tax incidence of only one state's lottery and/or by using only one time period's data. In addition, many assessments of the tax impact of lotteries fail to consider other demographic variables that may influence purchase patterns and, thus, be of interest to policymakers. To r emedy this, the current paper assesses the incidence of the lottery excise tax for five states using county level data spanning multiple Sears. Also a ssessed are changes in incidence across demographic groups as the lotteries matured. Lottery tax incidence is assessed with multiple regression estima tes of the income elasticity of demand for lottery products. The predominan t finding is that the lottery tax for these states had a regressive inciden ce. Otherwise, few consistencies in either change in lottery tax incidence or purchase patterns across demographic variables were found.