Public Choice

, Volume 109, Issue 1–2, pp 101–117 | Cite as

The Leviathan Lottery? Testing the Revenue Maximization Objective of State Lotteries as Evidence for Leviathan

  • Thomas A. Garrett
Article

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''.

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  1. 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.Google Scholar
  2. Brennan, G. and Buchanan, J. (1977). Towards a tax constitution for Leviathan. Journal of Public Economics 8: 255-274.Google Scholar
  3. Brennan, G. and Buchanan, J. (1980). The power to tax: Analytical foundations of a fiscal constitution. Cambridge: Cambridge University Press.Google Scholar
  4. Clotfelter, C. and Cook, P. (1989). Selling hope: State lotteries in America. Cambridge: Harvard University Press.Google Scholar
  5. Clotfelter, C. and Cook, P. (1990). On the economics of state lotteries. Journal of Economic Perspectives 4: 105-119.Google Scholar
  6. Deboer, L. (1985). Administrative costs of state lotteries. National Tax Journal 38: 479-487.Google Scholar
  7. Di-Matteo, L. (1995). Fiscal centralization at the provincial-local level in Canada, pp1961-1991. Canadian Tax Journal 43: 639-659.Google Scholar
  8. Filer, J., Moak, D. and Uze, B. (1988). Why some states adopt lotteries and others don't. Public Finance Quarterly 16: 259-283.Google Scholar
  9. Forbes, K. and Zampelli, E. (1989). Is Leviathan a mystical beast? American Economic Review 79: 568-577.Google Scholar
  10. 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.Google Scholar
  11. Gulley, O.D. and Scott, F. (1994). The demand for wagering on state-operated lotto games. National Tax Journal 45: 13-22.Google Scholar
  12. Hansen, A. (1995). The tax incidence of the Colorado state instant lottery game. Public Finance Quarterly 23: 385-398.Google Scholar
  13. Hersch, P. and McDougall, G. (1988). Voting for 'sin' in Kansas. Public Choice 57: 127-137.Google Scholar
  14. 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.Google Scholar
  15. 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.Google Scholar
  16. La Fleur, T. and La Fleur, B. (1998). The 1998 La Fleur's World Lottery Almanac, 6th edition, Boyds, Maryland, TLF Publications, Incorporated.Google Scholar
  17. Marlow, M.L. (1988). Fiscal decentralization and government size. Public Choice 56: 259-269.Google Scholar
  18. 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.Google Scholar
  19. Mikesell, J. (1994). State lottery sales and economic activity. National Tax Journal 47: 165-171.Google Scholar
  20. 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.Google Scholar
  21. Nelson, M. (1987). Search for Leviathan: Comment and extension. American Economic Review 77: 198-204.Google Scholar
  22. Oates, W. (1972). Fiscal federalism. New York: Harcourt Brace Jovanovich.Google Scholar
  23. Oates, W. (1985). Searching for Leviathan: An empirical study. American Economic Review 75: 748-757.Google Scholar
  24. Public Gaming International. (1996). Public Gaming 24.Google Scholar
  25. Ramsey, F. (1927). A contribution to the theory of taxation. Economic Journal 17: 47-61.Google Scholar
  26. Shadbegian, R. (1999). Fiscal federalism, collusion, and government size: Evidence from the states. Public Finance Review 27: 262-281.Google Scholar
  27. Sobel, R. (1999). Theory and evidence on the political economy of the minimum wage. Journal of Political Economy 107: 761-785.Google Scholar
  28. Stranahan, H. and Borg, M. (1998). Separating the decisions of lottery expenditures and participation: A truncated tobit approach. Public Finance Review 26: 99-117.Google Scholar
  29. Thiel, S. (1991). Policy, participation and revenue in Washington state lotto. National Tax Journal 44: 225-235.Google Scholar
  30. White, H. (1980). A heteroskedasticity-consistent covariance matrix estimator and a direct test for heteroskedasticity. Econometrica 48: 817-838.Google Scholar
  31. Zax, J. (1989). Is there a Leviathan in your neighborhood? American Economic Review 79: 560-567.Google Scholar

Copyright information

© Kluwer Academic Publishers 2001

Authors and Affiliations

  • Thomas A. Garrett
    • 1
  1. 1.Department of Agricultural EconomicsKansas State UniversityManhattanU.S.A

Personalised recommendations