The Impact of Lotteries on State Education Expenditures: Does Earmarking Matter?

In this paper, we estimate the impact of earmarking lottery revenue to education as opposed to filtering lottery revenue through a state's general fund. A unique facet of this investigation is the comparison of states with lottery revenue earmarked for spending on K-12 education and states with lotteries for general funds. This approach enables us to investigate the effect of state lottery revenues on education and other budgetary components in a more controlled environment by mitigating lottery preference differences across states. Consistent with previous research, we find that earmarking lottery proceeds for K-12 education has little or no impact on actual state K-12 funding. We also find that lottery revenue does seem to increase K-12 funding in states that deposit the revenues into their general funds.