Income and Lottery Sales: Transfers Trump Income from Work and Wealth

working paper, St. Louis Federal Reserve ^ | January 2008 | Cletus C. Coughlin and Thomas A. Garrett

[reaganaut1]

Previous studies have examined the effect of income on lottery ticket expenditures using an aggregate measure of income, usually personal income. Reasons exist, however, for believing that lottery expenditures do not respond equally to all sources of income. This paper examines the propensity to purchase lottery tickets from separate types of income, namely income from earnings, transfer payments, and wealth. Using county-level data for five states, we find evidence that lottery expenditures respond differently to changes in each income type, and that ticket purchases are most strongly influenced by changes in transfer payments. Several policy implications follow from our results.

[reaganaut1]

To summarize, government handouts are disproportionately spent on lottery tickets, because of the type of people who get such handouts. That's a good reason not to increase such handouts.

[TCats]

LOTTO = THE most regressive form of Taxation. To boot, it supports an army of Lotto bureaucrats - A complete scam.

[oblomov]

Robert Nisbet thought that the rise of a fatalistic mentality, as expressed by the popularity of gambling and speculation, was a sign of our cultural decline. The ancient Greeks at their florit were not fatalistic, but they became so in the Hellenistic age. The Romans underwent a similar transformation as their culture began its decline.

[patton]

Actually, you can write a PhD thesis in decision analysis, on when bying a lottery ticket constitutes a rational decision.

[petercooper]

Taxation? It’s voluntary. More like stupidity.

[TCats]

Really? I've not done any in-depth study of it but, just on a little thought, I think the ‘Odds’ are worse than the worst odds game in Las Vegas.

Not only are the winnings burdened by up front taxes but, if the payout is over time (Which many are - 20 years or so) the time-value adjusted winnings are often less than half what is advertised. To boot, there can be multiple winners, further diluting the expected value of any payout.

[TCats]

I used the word ‘Taxation’ because I view it as an Excise Tax on a dream that is in actuality a scam. Like taxes on smoking or liquor, both voluntary, it attaches itself to a voluntary activity and shorts the return to the player.

[patton]

First, calculate the expected value of the ticket, compared to ticket cost.

Then, examine the marginal cost of the ticket, measured against the buyer’s cost utility function.

This can go on for days, but the point is -

Can you spare the cost of the ticket?

What is the value of your dreams, until you discover that you (most likely) have lost?

Of course, the state lotteries are in business to distort all of this, so that folks spend silly amounts they can’t afford on farfetched odds.

But the idea of a lotto, in and of itself, is no more evil than the idea of a gun.

[Gondring]

Robert Nisbet thought that the rise of a fatalistic mentality, as expressed by the popularity of gambling and speculation, was a sign of our cultural decline.

Fatalistic mentality? It's not fatalism to make a decision to take a risk.

Lottery tickets are a means to have an opportunity of a great payoff, albeit with a very low chance of success. It seems to me that the purchase of lottery tickets is a signal of pessimism regarding the potential of reaching one's dreams via perseverence and non-gambling methods--and that is not fatalism, per se.

[E.Allen]

Just think of it as a progressive tax on stupidity.

[MrB]

You’re thinking that the reason behind transfer payments...

(hell, they’re welfare handouts from wealth confiscated from people the earned it!)...

cough... sorry, I digress...

to continue - the reason behind welfare is not actually to help people get a leg up, it is to keep them dependent, so it doesn’t matter if, and it’s actually better if, they squander it.

And on the confiscation end, confiscating the “excess” wealth of EARNERS keeps them from saving and building wealth that might lead to financial independence - the WORST thing that can happen in a socialist’s mind.

[Gondring]

But the idea of a lotto, in and of itself, is no more evil than the idea of a gun.

Exactly.

I fear, however, that I lack the formal education in such matters that would allow me to attach the correct terminology to the concepts I wish to convey.

What would it be called, if there's a minimum amount that one would consider "sufficient winnings"? For example, a person might eschew a scratch-off ticket with a more likely but more modest payout, choosing only to participate in lotteries that might make a sufficiently large jump in lifestyle to risk the benefit that dollar might give by being spent in a normal manner.

[TCats]

Agree that a Lotto is not inherently Evil. However, when you involve the Gov’t in promoting and siphoning off pay-ins it goes outside the boundaries of ethics IMO. These are scams that employ thousands, provide relatively little to the objects they were created to serve and ultimately drain the finances of those least able to afford it but most susceptible to the scam itself.

In many respects it is just another, legalized form of Three Card Monty that plays on the weaknesses of a largely low-income, uneducated segment of the population.

[Gondring]

to continue - the reason behind welfare is not actually to help people get a leg up, it is to keep them dependent, so it doesn’t matter if, and it’s actually better if, they squander it

Same with income taxes, in place of wealth taxes. They are disproportionately leveled against those who are attempting to better their wealth situation. Those who have abundant assets ("the rich") are benefiting more from "The Common Defence" than those without assets, yet their contribution is based only on income, which may be modest.

[Gondring]

In many respects it is just another, legalized form of Three Card Monty that plays on the weaknesses of a largely low-income, uneducated segment of the population.

But it is the low-income segment that has the most to gain from a win.

[MrB]

I addressed that in the last sentence.

Excessive, “progressive” taxation’s only purpose is to prevent people from becoming financially independent.

This is why the fact that tax revenue actually increases when you lower the tax rates is ignored by the left.

Every wonder why they were impervious to this argument? There it is.

[bert]

.....THE most regressive form of Taxation.....

Since the poor and near poor and not so poor are exempt from income tax, the lottery gives them the opportunity to pay part of their share.

[patton]

You done good - it would be called “the marinal utility of a dollar.”

And that is the point - there is an entire science dedicated to trying to quantify why people will make these decisions.

In the real world, we call it “insurance.”

Is your car insured? Why?

[Gondring]

Oops...you’re right... I read that sentence and it just didn’t stick! I simply expanded on something you brought up. :-)

[TCats]

Yes, but the winnings are not proportionate to the risk associated with the investment. Just because it is many millions of small amounts doesn't change this fact.

The shortfall is what I call a form of Tax that is levied without full disclosure and in an atmosphere of hype and misinformation.