Abstract
Unlike other governmental units, statelottery agencies publicly acknowledge thattheir primary objective is revenuemaximization. This claim and the inherentmonopoly power of lottery agencies providesa unique arena to test for Leviathan. Withdata obtained from United States' lotterygames, I perform a Laffer curve analysis toderive the optimal lottery tax rates fordifferent categories of games. Theseoptimal tax rates and Monte Carlosimulations are then used to test whetherthe current tax structure of lottery gamesis indeed the revenue maximizing structure. I find strong empirical evidence for the``Leviathan Lottery''.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Anderson, J.E. and Van-den-Berg, H. (1998). Fiscal decentralization and government size: An international test for Leviathan accounting for unmeasured economic activity. International Tax and Public Finance 5: 171-186.
Brennan, G. and Buchanan, J. (1977). Towards a tax constitution for Leviathan. Journal of Public Economics 8: 255-274.
Brennan, G. and Buchanan, J. (1980). The power to tax: Analytical foundations of a fiscal constitution. Cambridge: Cambridge University Press.
Clotfelter, C. and Cook, P. (1989). Selling hope: State lotteries in America. Cambridge: Harvard University Press.
Clotfelter, C. and Cook, P. (1990). On the economics of state lotteries. Journal of Economic Perspectives 4: 105-119.
Deboer, L. (1985). Administrative costs of state lotteries. National Tax Journal 38: 479-487.
Di-Matteo, L. (1995). Fiscal centralization at the provincial-local level in Canada, pp1961-1991. Canadian Tax Journal 43: 639-659.
Filer, J., Moak, D. and Uze, B. (1988). Why some states adopt lotteries and others don't. Public Finance Quarterly 16: 259-283.
Forbes, K. and Zampelli, E. (1989). Is Leviathan a mystical beast? American Economic Review 79: 568-577.
Garrett, T. (1999). A test of shirking under legislative and citizen vote: The case of state lottery adoption. Journal of Law and Economics 62: 189-208.
Gulley, O.D. and Scott, F. (1994). The demand for wagering on state-operated lotto games. National Tax Journal 45: 13-22.
Hansen, A. (1995). The tax incidence of the Colorado state instant lottery game. Public Finance Quarterly 23: 385-398.
Hersch, P. and McDougall, G. (1988). Voting for 'sin' in Kansas. Public Choice 57: 127-137.
Jackson, J., Saurman, D. and Shughart, W. (1994). Instant winners: Legal change in transition and the diffusion of state lotteries. Public Choice 80: 245-263.
Jeong, J. and Maddala, G. (1993). A Perspective on application of bootstrap methods in econometrics. In G.S. Maddala, C.R. Rao, and H.D. Vinod (Eds.), Econometrics, Handbook of Statistics, 11. Amsterdam: North-Holland.
La Fleur, T. and La Fleur, B. (1998). The 1998 La Fleur's World Lottery Almanac, 6th edition, Boyds, Maryland, TLF Publications, Incorporated.
Marlow, M.L. (1988). Fiscal decentralization and government size. Public Choice 56: 259-269.
Mason, P., Steagall, J. and Fabritius, M. (1997). The elasticity of demand for lotto tickets and the corresponding welfare effects. Public Finance Review 25: 474-790.
Mikesell, J. (1994). State lottery sales and economic activity. National Tax Journal 47: 165-171.
Nelson, M. (1986). An empirical analysis of state and local tax structure in the context of the Leviathan model of government. Public Choice 49: 283-294.
Nelson, M. (1987). Search for Leviathan: Comment and extension. American Economic Review 77: 198-204.
Oates, W. (1972). Fiscal federalism. New York: Harcourt Brace Jovanovich.
Oates, W. (1985). Searching for Leviathan: An empirical study. American Economic Review 75: 748-757.
Public Gaming International. (1996). Public Gaming 24.
Ramsey, F. (1927). A contribution to the theory of taxation. Economic Journal 17: 47-61.
Shadbegian, R. (1999). Fiscal federalism, collusion, and government size: Evidence from the states. Public Finance Review 27: 262-281.
Sobel, R. (1999). Theory and evidence on the political economy of the minimum wage. Journal of Political Economy 107: 761-785.
Stranahan, H. and Borg, M. (1998). Separating the decisions of lottery expenditures and participation: A truncated tobit approach. Public Finance Review 26: 99-117.
Thiel, S. (1991). Policy, participation and revenue in Washington state lotto. National Tax Journal 44: 225-235.
White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48: 817-838.
Zax, J. (1989). Is there a Leviathan in your neighborhood? American Economic Review 79: 560-567.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Garrett, T.A. The Leviathan Lottery? Testing the Revenue Maximization Objective of State Lotteries as Evidence for Leviathan. Public Choice 109, 101–117 (2001). https://doi.org/10.1023/A:1012081307920
Issue Date:
DOI: https://doi.org/10.1023/A:1012081307920