Are All Lotteries Regressive? Evidence from the Powerball

Abstract

The regressivity of lotteries has become an increasingly important issue in the U.S. as the number of state-run lotteries has increased. Despite this, we still know relatively little about the nature of lottery regressivity. I use a new dataset on Powerball lotto sales to analyze how regressivity varies with jackpot size within a single lotto game. I find that these large-stakes games are significantly less regressive at higher jackpot sizes. An out-of-sample extrapolation of these results suggest that the lottery becomes progressive at a jackpot around $806 million. This suggests that concerns about regressivity might be allayed by concentrating lotto games to produce higher average jackpots.

Keywords: gambling, lottery, tax, regressivity

JEL Classification: D31, D81, H22, H31