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The Difference Between Lotteries and Gambling

Legal definitions

Lottery – a game with established rules where players buy tickets for a chance to win cash or other merchandise prizes.

Gambling – a game or mutual bet according to established rules whose participants, seeking monetary gain, voluntarily risk losing an amount they have paid in, and where winning or losing is determined by chance, by some event, or by the result of a sport competition.

What they have in common

How they differ

In a lottery, players compete against other players. A lottery’s prize fund is set in advance and the lottery operator does not participate in the game.

In gambling, players compete individually against the gambling operator. It is in the gambling operator’s interest to win against the players.

Levels of thrill depend on a combination of these key factors:

1. The price to participate in a game and the size of the prize. The smaller the cost of playing a game and the bigger the prize (the amount that can be won), the more participants are drawn in (and vice versa).
2. Likelihood of winning. The greater the likelihood of winning, the more participants are drawn in (and vice versa).
3. The amount of time between when a bet is made, its outcome and the opportunity to bet again. The less time there is between when a bet is made, its outcome (won / lost) and the opportunity to bet again, i.e., the less time there is to make a rational decision on whether to continue wagering or to quit, the more participants are drawn in (and vice versa).

Principals for the taxation of lottery and gambling operators

Lottery operators

What is taxed is sales revenue:
a 5% lottery tax;
an 8% allocation to charity or sponsorships.
In total, 13% of revenue.

Gambling operators

There are two bases of taxation:
1. A fixed tax per gambling machine (at casinos or slot halls);
2. A tax on GGR (what players pay in minus the winnings paid out to them): 15% for betting and sweepstakes, 10% for remote gaming.

Example

A lottery operator sells EUR 1000 worth of lottery tickets. 13% of that revenue, i.e. EUR 130, will go to good causes: EUR 50 will be paid into the state budget as a lottery tax and another EUR 80 will go to charity or sponsorships.
A remote gambling operator takes EUR 1000 of wagers from players. If the GGR (the amount players wager less the winnings they’re paid) is, say, EUR 100, then 10% of that, i.e. EUR 10, will go to good causes: it will be paid into the state budget as a gambling tax.

Sales revenue, EUR
Tax rate, %
Tax amount, EUR

EUR 100
13%
EUR 13

EUR 100
0%
EUR 0

EUR 100
0%
EUR 0

Winnings, EUR
Net income (GGR), EUR
Tax rate, %
Tax amount, EUR

Total taxes, EUR
Tax on revenue, %
Tax on net income, %

EUR 13
13%

26%

EUR 1
1%

10%

EUR 1.5
1.5%
15%

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The Difference Between Lotteries and Gambling Legal definitions Lottery – a game with established rules where players buy tickets for a chance to win cash or other merchandise prizes.

Is Lottery Gambling Addictive?

  • Article Information
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Abstract

Citation

Additional Materials

JEL Classification

  • D12 Consumer Economics: Empirical Analysis
  • H27 Taxation, Subsidies, and Revenues: Other Sources of Revenue
  • H71 State and Local Taxation, Subsidies, and Revenue

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Is Lottery Gambling Addictive? by Jonathan Guryan and Melissa S. Kearney. Published in volume 2, issue 3, pages 90-110 of American Economic Journal: Economic Policy, August 2010, Abstract: We present an empirical test for the addictiveness of lottery gambling that exploits an exogenous shock to loca… ]]>