Abstract
Most of the academic literature that has examined state lotteries has had a negative assessment of them. Studies of lotteries as a source of revenue have reported that even under the best circumstances, they generate only a tiny proportion of a state's revenues, and the lottery revenues are so volatile that states cannot and should not be dependent on them. In addition, the general consensus is that lotteries have high administrative costs, and that they may reduce other sources of state revenue.1 In contrast to this negative view prevalent in the academic literature, lotteries have been exceedingly popular with policymakers in state capitals and among the general public. Most of the literature which casts a negative light on lotteries as a revenue source looked at data through the mid-1980s. Since then, the number of states operating lotteries has grown from 17 in 1985 to 33 in 1992. In only one state (North Dakota) during the past 30 years has a lottery referendum failed to achieve a majority of votes.2 Why are lotteries so popular? Is it because voters are ill-informed and unsophisticated? Do proponents mistakenly believe that they will help cure government revenue shortfalls? Or is it possible that lotteries really do have a significantly favorable fiscal impact, that lottery revenues are not as small and destabilizing as the academic literature maintains?
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