The drawing of lots to determine ownership and other rights is a very old practice. The lottery, in which tickets are sold for the chance to win cash prizes, is a more recent development. The first public lotteries were organized by Roman Emperor Augustus for municipal repairs in the City of Rome and, later, in the Low Countries (Ghent, Bruges, and Utrecht). By the seventeenth century it was common for public charities to hold lotteries to raise funds for poor relief. The Dutch state-owned Staatsloterij (opens in new tab) is the oldest continuously running lottery.
State lotteries are now an enormous business with Americans spending nearly $100 billion each year on tickets. The success of these enterprises is due to a combination of factors.
In addition to their obvious entertainment value, lottery games offer a relatively inexpensive and flexible source of revenue for state governments. They also provide a source of tax-free income for individuals, who, in return, have the opportunity to spend their winnings on other forms of gambling and entertainment.
State lotteries are a classic example of public policy being made piecemeal and incrementally, with the overall welfare taking a back seat to special interests. The establishment of a state lottery involves many steps: a legislative act is passed; a lottery agency is established (or licensed to a private company); a minimum number of fairly simple games are offered; and, because of constant pressure for additional revenues, the games are enlarged. In the early days, lottery officials were often swayed by the argument that lottery proceeds are a “painless form of taxation.” Several studies have shown, however, that state lotteries do not raise significant revenues from low-income neighborhoods and that the people who play them disproportionately come from middle-class areas.