The State Lottery Tax: An Equity Analysis

This paper finds the state lottery tax to be vertically inequitable. The tax is inherently regressive, meaning poorer income classes spend a larger share of their income on lottery products than higher income classes. The paper also finds the lottery tax to be horizontally inequitable. Older people, males, less educated individuals, and minorities (except Asians) all tend to spend more on lottery products than their respective counterparts. Policy makers should lower the implicit tax rate from its current level of 44% to 19%. A decrease in the tax rate will increase state revenue, increase consumer surplus, possibly stimulate the economy, and decrease the inequities outlined above.