Lottery Economics


Many people bid to join the lottery every year and are consistently met with the same results, so how do consumers benefit from spending money on the lottery. Many people who enter the lottery are unaware that winners of $5,000 or more, 25% of those earnings will never be seen, going to federal income taxes. Adding to this, depending on the amount won and an individual's salary, they will have to pay additionally to complete the 39.6% of the federal level top income tax rate. Those entering the lottery ignore this because of the marginal benefit of possible winning outweighing the cost of the ticket. Despite being a major source of government funds, lottery revenues are not transparent like a normal tax. Consumers buy tickets and ignore the implicit tax rate on the purchased tickets. Since states have to fund managing and advertising lotteries from their own money, it is likely for them to pay high fees to private advertising firms to assist in sales. To conclude, lotteries evidently circulate money through government market systems.

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