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Tuesday, February 06, 2007

An Argument Against the Privatization of Lotteries

This is an argument against privatization of lotteries and other government activities. However, I'm not sure how generally applicable the argument is since it is based on the premise that the activity - gambling in this case - is socially controversial. As such, future governments may want to make the activity illegal but as explained below, if it has been is privatized, that can be more difficult:

Don't privatize future by selling state lottery, by Saul Levmore, U Chicago News: As Indiana and Illinois prepare to sell their lotteries, it is worth thinking about privatization and the selling of a long-term activity. Illinois Gov. Rod Blagojevich says the state might take an estimated $10 billion... Some politicians and voters want the money now, rather than over time, and some voters simply believe the private sector is more efficient and less inclined to corruption.

Who is opposed to these sales? Not future citizens who can't complain about their "missing" revenue stream. The most popular objections will come from those who dislike lotteries or governments. There is, after all, something amusing about a state's ability to give itself a monopoly in a type of gambling--and then to sell it off to the private sector.

There are some good arguments for a state-sponsored lottery... Even a good libertarian could say that inasmuch as the government is not coercing people to play..., a state lottery is not the worst of all evils. Some people might actually like playing it, and that must count for something.

Another objection to the sale of state lotteries carries over to other privatizations. The sale almost certainly locks in public policy in a way that binds future electorates and leaders. ... We know that lotteries are controversial and that it is plausible that our successors may wish they could do away with them. A government that sells the future income stream from a lottery will likely maximize the current sales price or revenue by promising not to devalue the asset it sells after the privatization takes place. It's likely Illinois will look for more upfront cash, and therefore it will promise not to make the lottery illegal (or to compensate the buyers if it does so). It can be counted on to keep these promises for reputation or legal reasons. In this way, a sale of the lottery limits the ability of future governments to do away with the lottery. The objection, then, is that revenue-maximizing privatization locks in policies more than necessary.

The lock-in would be modest if Illinois ... leav[es] the appropriate share of the sale proceeds for future governments. This is not because of intergenerational equity... It is because the saving of proceeds leaves money to compensate the private buyer in the event that future electorates decide they would prefer to do away with the lottery, or at least its monopoly position.

Even if we have no single rule to go by in order to know when the government should own something, create a monopoly or compete in an industry, it seems unlikely that we want a government to lock in future governments. Strange as it may sound, privatization should probably be reversible, especially when there is grave doubt as to whether the government should have been in the business in the first place.

I've never liked lotteries as a government revenue source, but that view doesn't seem to be widely shared. Lotteries are highly regressive, some people are "voluntarily" addicted and because of that lotteries have the potential to do harm far greater than carefully considered taxes yielding identical revenues, and it represents the outcome of a political process where legislators are afraid to make hard decisions. With a lottery, legislators don't have to name the person or business being taxed and they can always claim the tax is purely voluntary. But, you might wonder, who pays taxes voluntarily?

    Posted by on Tuesday, February 6, 2007 at 12:15 AM in Economics, Policy, Politics, Taxes | Permalink  TrackBack (0)  Comments (16)


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