Where the money goes: the role of funding allocation in lottery markets

Abstract

ABSTRACT A key characteristic of state-authorized lotteries is that they are required by law or through their licenses to make payments to society (in the form of taxes paid to the treasury, duties, funds to sports, or funds for other good causes). So state lotteries serve to some extent as a public finance tool. This paper aims to study how lottery markets around the world respond to different funding allocation strategies, but also how lottery sales respond to the macroeconomy. These are crucial issues to enable these markets to confront future challenges and to maintain lottery payments for society. Consequently, an economic-related approach is taken to investigate the role of funding allocation in lottery markets from an international perspective using panel data information from The WLA Global Lottery Data Compendium. The empirical findings show a negative relationship between lottery sales and financial contributions to society. However, relevant differences exist depending on the funding strategy adopted, and a positive link between sales revenue and allocating funds to education or social purposes is observed. Overall, it is found that lottery is a normal good and as an implicit tax, regressive.