Constructing a Model of Lottery Tax Incidence Measurement: Revisiting the Illinois Lottery Tax for Education

Nearly half a century of lottery scholarship has measured lottery tax incidence predominantly through either the Suits Index or regression analysis. The present study builds on historic lottery tax burden measurement to present a comprehensive set of tools to determine the tax incidence of individual games in addition to determining which lottery consumer demographic bears the burden of the Illinois lottery tax. Previous research has suggested that the Illinois lottery presents an ambiguous tax-burden determination, which prompts our selection of that state for this study. Results of Suits Index analysis with corresponding confidence intervals suggest that the Illinois lottery functions as a regressive tax on lottery consumers. Lottery games in Illinois were found to vary greatly in their degree of regressivity. Regression analysis provides a sequential model building illustration to suggest the importance of model justification and appropriateness in determining lottery tax incidence. Regression results reveal the impact of gender, education, race, age, and economic status on lottery burden determination. The significance of this study is in the presentation of a comprehensive set of metrics provided to educational policymakers as they determine which public finance tools to employ in raising funds to finance public schools.