Lottery expenditure in a non-lottery state

Abstract

One of the major arguments for legalization of lotteries in new jurisdictions in the United States has been the fact that neighboring states, with their own lotteries, have captured lottery purchases from the other jurisdiction's citizens. This paper explores the issue by examining lottery purchase patterns in the state of Indiana prior to the start-up of the Indiana lottery, at a time when three adjacent states offered a variety of lottery product. Tobit analysis is also done on survey data to determine important contributing factors to the decision to play the lottery, as well as individual lottery expenditures. The paper concludes that, even though lottery revenues for a state are regressive, legalization might be justified on the basis of reducing the regressive outflow of revenue to bordering lottery states.