Decomposing the Racial Gap in State Lottery Participation

(ProQuest: . denotes formulae omitted.)INTRODUCTIONMost research on lottery participation supports the finding that race, education and income are primary determinants for the probability of playing the lottery and the dollars spent by those who play (Ariyabuddhiphongs, 2011; Clotfelter and Cook, 1989; Heberling, 2002; Rubenstein and Scafidi, 2002; Stranahan and Borg, 1998a). Research indicates that black and Hispanic households tend to play more and spend more than white households, ceteris paribus. Since minority households also tend to be less educated and earn lower incomes on average, studies of lottery often proceed under the implicit assumption that state sponsored lotteries are regressive.The existing literature leaves important questions unanswered: Why are minority households more likely than equivalent white households to play the lottery? And of those that do choose to play, why do minority households spend more dollars on lottery products than equivalent white households? Are cultural differences responsible for gaps in participation and spending, or is it simply that low income households with lower levels of education both tend to play the lottery and tend to be minorities? From the perspective of the state as a revenue maximizer, an understanding of why minority households might spend significantly more on lottery products than white households may be of value for marketing and outlet location decisions. If repeated studies find strong determinants of the racial gaps to be attitudinal, behavioral or cultural, and not related to levels of education and income as opponents of the lottery argue, then the claim that minorities are unsuspecting victims of the regressive lottery tax would lose ground.The purpose of this research is to model the impact of race on 1) the probability that individuals will play the lottery and 2) the dollars spent for lottery products by those who choose to play, controlling for income, education and other demographic and attitudinal characteristics. Going beyond the usual discussion of marginal effects of the explanatory variables on outcomes, this paper decomposes the gaps in outcomes into portions that can be attributed either to differences in characteristics between the racial groups or differences in the marginal effects of those characteristics.LITERATURE REVIEWEarly research focused on the relationship between income and lottery participation. Brinner and Clotfelter (1975) estimated a non-linear relationship between lottery sales and income, with absolute expenditures rising to a peak in the middle income ranges, then declining. A decade later, Mikesell and Zorn (1986) found a strong positive relationship between lottery sales per capita and per capita income, as did Scott and Garen (1994). Stranahan and Borg (1998a) found that people earning less income are more likely to play, but among people that do play, higher income players spend more dollars. Price and Novak (2000) examined three different state lottery games and found that while all three were regressive, instant lottery games were most regressive. However, Garrett (2012) concluded that regressivity was less among higher priced instant games.More recent studies found that probabilities of playing the lottery and expenditures for those who play are a function of race, income, and educational attaimnent. Heberling (2002) reports that people who most heavily play the lottery are the poor, the less educated, and minorities. Price and Novak (1999) found spending in the most regressive lottery games to be greater for both black and Hispanic populations compared to their white counterparts. Using the 1998 National Survey on Gambling, Kearney (2005) reported that black respondents had average expenditures of $200, nearly twice as much as white or Hispanic respondents. Spending was highest among black males. Perez and Humphries (2011) identified the typical lottery player as a middle aged, married male of low educational attainment. …