Implicit Taxation in Lottery Finance

44 Pages Posted: 9 Feb 2007 Last revised: 23 Aug 2010

See all articles by Charles T. Clotfelter

Charles T. Clotfelter

Duke University - Sanford School of Public Policy; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Philip J. Cook

Duke University - Sanford School of Public Policy; Duke University, Dept. of Economics; National Bureau of Economic Research (NBER)

Date Written: May 1987

Abstract

State lotteries as they are operated in the United State today involve four distinct aspects: legalization of lottery games, monopolistic provision by the state, marketing of lottery products, and extraction of a portion of the surplus they derive from sales for state revenue. In this paper we use conventional tools of applied public finance to examine the implicit tax levied by lottery agencies through this fourth function . We examine the incidence of the implicit lottery tax, focusing on the dominant lottery games used in the 1980s. We find that the implicit tax is regressive in virtually all cases. We then consider whether the implicit tax rate on lotteries is too high, comparing that rate to excise tax rates on alcohol and tobacco.

Suggested Citation

Clotfelter, Charles T. and Cook, Philip J., Implicit Taxation in Lottery Finance (May 1987). NBER Working Paper No. w2246. Available at SSRN: https://ssrn.com/abstract=347029

Charles T. Clotfelter (Contact Author)

Duke University - Sanford School of Public Policy ( email )

Box 90245
Durham, NC 27708
United States
919-613-7361 (Phone)
919-681-8288 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Philip J. Cook

Duke University - Sanford School of Public Policy ( email )

201 Science Drive
Box 90312
Durham, NC 27708-0239
United States
919-613-7360 (Phone)
919-681-8288 (Fax)

Duke University, Dept. of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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