The Lottery as Source of State Revenue - Research Paper Example

The Lottery as Source of State Revenue Name: University: Course Title: Instructor: Date of Submission: Abstract The purpose of this research paper is to assess the fact that although the lottery generates gambling issues, it brings a lot of much needed revenue to states, and has a positive impact in American economy. More than 13 states in the US have established and operate lotteries as a source of generating additional revenue. This research paper shall begin by providing a brief introduction on the subject. The paper shall then examine lottery as a source of state revenue. In this section, various statistics and figures shall be provided to back up the fact that although the lottery generates gambling issues, it brings a lot of much needed revenue to states, and has a positive impact in American economy. The third section shall investigate gambling issues associated with state lotteries. In this section, the adverse implications resulting from pathological gambling shall be the main focus. Finally, this research paper shall provide a conclusion and recommend crucial measures of addressing gambling issues associated with state lotteries. Introduction Szakmary and Szakmary (1995, p.1167) observe that most academic works have depicted state lotteries in the negative perspective. In this regard, they postulate that state lottery generates only a tiny portion of state’s revenue and that these revenues are so volatile that the state ought not to depend and should not depend on them. In addition, the high administrative cost reduces the rationale of relying on it as a source of state revenue (National Conference of State Legislatures, 2013; Szakmary and Szakmary, 1995, p.1167). Mikesell (2001. p.86) equally observes that 35 years back state lotteries were viewed as prone to unpredictable change. However, contrary information has been developed to affirm that lottery can act as a source of state revenue. The positive realizations in 1964 in New Hampshire and 1970 in New Jersey that lottery could constitute a profitable engagement disapproved the earlier thinking (Mikesell, 2001, p.86). For instance, National Conference of State Legislatures, (2013) indicates that lotteries contribute up to 3% of state revenue in America. This research paper assesses the fact that although the lottery generates gambling issues, it brings a lot of much needed revenue to states, and has a positive impact in American economy. Lottery as Source of State Revenue In the recent past, there has been a rapid expansion of lotteries as a source of state revenue across the world. This reflects the how contemporary societies have changed their views and perception on lotteries and gambling. In Canada for instance, all its 10 provinces have legalized forms of gambling such as ticket lotteries, casinos, and charitable gaming (Stevens and Beristain, 2004, p.320). in Australia, revenues from gambling activities such as state lotteries generated turnover of more than $ 50 billion by state governments in 1997 (Layton and Worthington, 1999, p.430). In America, more than 42 states have approved and operate lotteries as a crucial source of state revenues. The state of Arkansas became the 43rd state to operate a lottery with the objective of generating revenue (National Conference of State Legislatures, 2013). Lotteries are not just businesses, but big businesses. In 2001, 2002 and 2003 North American Association of State and Provincial Lotteries (NASPL) indicated that state-owned lotteries generated revenues amounting to $ 38.9 billion, $ 42.4 billion and $ 44.9 billion respectively (Penn, n.d, p.13). According to the National Conference of State Legislatures (2013), there has been a steady increase in revenue generated from lotteries. Figure 1 below depicts ticket sales, revenue proceeds to states, and percentage of total state revenue between 1997 and 2006. Figure 1: Lottery sales, proceeds and state revenue, 1997-2006 Source: National Conference of State Legislatures, 2013 Despite the fact that profits or rather revenue generated by states from state lotteries are relatively minimal as compared to state revenue generated from state tax, state lotteries actually brings a lot of the much needed revenue to states, and has a positive impact in American economy. In the state of Georgia for instance, the revenue generated from lotteries in 2003 was equivalent to 5.6 percent of the total revenue generated from state tax. Other states such as Delaware, Massachusetts, Oregon, Rhode Island, South Dakota and West Virginia generates 9.8 percent, 6.0 percent, 6.8 percent, 10.7 percent, 11.0 percent and 11.5 percent respectively of their total revenue generated from state tax (Penn, n.d, p.14). This significantly helped these states to weather periods of economic downturn with regard to slow growth in tax revenue. Even though the fact that state lotteries generates significant issues with regard to gambling and patterns of spending can not be disputed, they surely remain significant sources of state revenues. According to Stevens and Beristain (2004, p.322), state lotteries have significant socio-economic implications on Americans. Much of the rational for gambling activities expansion since the 1980 especially in North America stems from significant assumption that the revenues generated from gambling activities such as ticket lotteries and casinos among others significantly benefited the society in general. This resulted into the legalization of such gambling activities and subsequently expansion of legalized gambling and state lotteries. According to Penn (n.d, p. 14 and 15), state lotteries are regarded as good sources of additional state revenue. States and governments establish and operate lotteries with the explicit objective of maximizing their revenue sources. State lotteries just like other gambling ventures have significant implications on consumer behavior. This regards how individuals and households spend their income on lotteries. Even though engaging in the purchase of lottery tickets means individuals and households will be spending a portion of their income for something else, studies have indicated that this does not minimize spending on other forms of either legal or illegal gambling activities. In essence, individual and households do not substitute lottery gambling for other forms of gambling, but rather cut spending on non gambling activities to purchase a lottery ticket. In addition, the introduction of an individual or a household to lottery gambling significantly increases their chances of participating in the same (Penn, n.d, p.15). Mikesell (2001. p.91) postulates that dismissing state lotteries as “fiscal gimmicks” is inappropriate. This is because state lotteries exist in a majority of states in America beside a lot of money being spent on lottery gambling. Despite this fact, lottery finances are regarded as irrelevant when it comes to state finances. This is mainly because lottery finances represent the flow of money from individuals and households to state lotteries. In addition, since the costs of operation as well as the prizes which are paid to the winners of lotteries are covered in the total monetary flow state lottery do not sufficiently reflect their contribution to the finances of state governments (Mikesell, 2001. p.91). However, the net proceeds which represent the amount of money remaining after payment of prizes and deduction of operating costs are pertinent to the state revenue system and significantly contribute to economic growth and development. Gambling Issues Associated with State Lottery After examining the role of state lottery in regards to state revenue generation, it is prudent, to examine albeit in brief the negative connotations or gambling issues from the socio-economic context that is associated with state lottery. The concept has been found to have detriment on gamblers from low income bracket since one might spend his income on the same with the hope of striking a jack pot. The expansion on the same has effect on households which have high profitability. Even though participating in gambling activities such as lotteries is voluntary, the pattern of expenditure may significantly work against low income individuals and households. This may further deepen their economic situation which may again be only addressed by other state or rather public support interventions or programs. In addition, it has been established that gambling creates compulsive gambling and major addiction, attract criminal elements among individuals and fosters corruption (Layton and Worthington, 1999, p.430 and 431). The main business of state lotteries is the provision of gambling activities through lottery tickets and as such, is multibillion business enterprises. State lotteries businesses run huge percentage of profits annually and also play a crucial part in various economic industries such as tourism and hospitality industry (Davis, Filer and Moak, 1992). However, dependence on gambling results into a disorder popularly referred to as pathological gambling. This is an acquired behavior that has the potential of ruining individuals especially when they become dependent on gambling. Pathological gambling is a behavior where individuals involved acquire destructive activities as well as behaviors which may include running large amounts of debts, criminal activities, fraud, forgery, suicide, excessive alcohol consumption, financial gambling, theft as well as compromised relationships with friends, relatives and family members among other socio-economic and cultural deviant activities. Pathological gambling has three main dimensions which include loss of control, disruption or damage and dependence (National Gambling Impact Study Commission Report, n.d, p.1 to 3). Pathological gambling risk factors include behavioral challenges such as substance abuse as well as mood and personality disorder, genetics especially when an individual’s parents were pathological gamblers and environmental factors for instance the age at which one starts gambling. The costs of pathological gambling are huge and usually affect the life of the gambler, his family and the society in general. The players in this industry, the state authorities in this case, have a responsibility to control alcohol consumption among the pathological gamblers since excessive consumption of alcohol not only jeopardize their health, but also influence them to spend a lot of their resources on gambling resulting into various adverse consequences like engaging in criminal activities to continue financing their gambling behaviors (National Gambling Impact Study Commission Report, n.d, p.1 to 3). Conclusion The purpose of this research paper was to assess the fact that although the lottery generates gambling issues, it brings a lot of much needed revenue to states, and has a positive impact in American economy. In order to achieve this, this research paper has outlined the growth and state of lottery as a source of state revenue in America. In addition, this research paper has examined the negative implications that lottery has on individuals, households and the economy/society in general. The role of state lotteries as crucial sources of state revenue can not be disputed. However, the government/states through relevant departments need to formulate and enforce measures that ensure participants do not become pathological gamblers. Personal responsibility must be encouraged as it plays an important role with regard to adverse implications of pathological gambling on individuals, households and the economy/society in general. References Davis, J.R., Filer, J.E. and Moak, D.L. (1992). The lottery as an alternative source of state revenue. Atlantic Economic Journal, 20(2): 1-10. Layton, A. and Worthington, A. (1999). The impact of socio-economic factors on gambling expenditure. International Journal of Social Economics, 26 (1/2/3): 430-440. Mikesell, J. L. (2001). Lotteries in state revenue systems: gauging a popular revenue source after 35 years. State and Local Government Review, 33 (2): 86-100. National Conference of State Legislatures (2013). Lotteries as a state revenue. Retrieved July 4, 2013 from: http://www.ncsl.org/issues-research/econ/lotteries-as-a-state-revenue.aspx. National Gambling Impact Study Commission Report. (n.d). Problem and pathological gambling. Retrieved July 4, 2013 from: http://govinfo.library.unt.edu/ngisc/reports/4.pdf Penn, D.A. (N.d). State Lotteries: What Do We Know about Impacts? Retrieved July 4, 2013 from: http://capone.mtsu.edu/berc/tnbiz/pdfs/tbizlotterypenn.pdf Stevens, R. and Beristain, M. (2004). Canadian guide to gaming industry resources. Reference Services Review, 32(3): 320-328. Szakmary, C. A. and Szakmary, M. C. (1995). State lotteries as a source of revenue: a re-examination. Southern Economic Journal, 61(4): 1167-1181. Read More