Clotfelter Presents Better State Lotteries Today At Duke

Charles T. Clotfelter (Duke; Google Scholar) presents Better State Lotteries at Duke today as part of its Tax Policy Seminar hosted by Larry Zelenak:

One objectionable feature of state lotteries has been that they impose an extraordinarily high rate of implicit tax on one particular category of consumer spending, namely lottery games. But a little-noted change has taken place over the last three decades that has ameliorated this defect. This change is an increase in the average payout rate, the share of sales that is returned to players in the form of prizes. Because it reduces the rate of implicit taxation on lottery purchases and its accompanying welfare loss, this change has inadvertently made lotteries better, or at least less objectionable. This paper reviews the normative case for reducing the implied tax, notes its inapplicability to problem gamblers, documents the rise in payout rates across the U.S., offers an explanation for that rise, notes the starring role played by instant games, illustrates its effect on the regressivity of lottery finance, and documents the surprising correlation between the price of instant games and their payout rates. 

The paper concludes by questioning the wisdom of marketing efforts to stimulate sales, especially given the existence of problem gamblers.