Author Archives: jackdion13

Is the lottery helping states hit the economic jackpot?

The lottery system in the United States seems like a very simple way to generate profits on a state level. People willingly donate money to the state government in the very minimal chance that they earn money back. Statistically, the odds of winning the lottery are so low that yields on revenue generated compared to payouts should be highly favorable for the state. However, when you look the numbers closely, it becomes more complicated and less profitable than many realize. It is evident that consumption in the lottery is way less helpful for the government in terms of total contributions to GDP, but are the alternatives too politically unfavorable to make a change to the current lottery system?

Examining the true impact of lottery tickets requires a fair analysis of the negatives as well as the positives. First, the scope of lottery revenue on state governments is relatively small. Americans spent a total of $70.15 billion on lottery tickets in the last year. However, when you break down the percentages, that total becomes a lot smaller. By the numbers, money spent on tickets is broken down into several categories. Sixty percent of the money is paid out in winnings. Another 5% is given out as commission for those stores that sell the tickets with another 9% going towards things like advertising and miscellaneous administrative costs. That leaves around one-fourth of the actual earnings going to the states.

When you see that 26% of lottery sales go to state governments, it is easy to understand why they may be less viable options to help GDP. For example, if you walk into a convenience store and spend $20 on lottery tickets, the state sees $5 of those sales. This one-fourth cap would originally count as a consumption expenditure but would then be transferred over as a government expenditure when that money is used on other government programs. However, if you spent those $20 instead on Skittles, all $20 would count as a consumption expenditure with no profits being taken out of the original purchase. This simple model helps to demonstrate why lottery ticket sales seem profitable in practice but backfire when actually implemented.

Why, then, would state governments ever defend their lottery systems if they are seemingly losing so much revenue from sales? The issue many state governments face is the implementation of appropriate tax policy to counteract the necessary funds needed to fund specific government programs. The lottery system is a perfect loophole to increasing taxes because it is 100% voluntary on the side of the consumer. This 26% revenue gained by state governments is incredibly helpful for projects such as building roads to improving public schools. The total funds given to state coffers is around $18 billion, which is roughly only 2% of total state budgets. This may seem like a drop in the bucket but is an extremely popular way to increase budgets. The alternative of increasing taxes to raise that $18 billion would be a wildly unpopular move for any politician.
It is now evident that the lottery system is a very inefficient way to generate state funding. However, there does not seem to be a clear-cut way to improve the current system to favor an increase in government expenditures. The only way to create incentives in the current lottery system is to increase the prize pool. However, this in turn only makes it more likely that someone will win that large jackpot. It is an effective way to voluntarily get a populace to willingly contribute to the state, but are the benefits worth it at such high costs?

http://www.reuters.com/article/us-usa-powerball-fees-idUSKCN0US2MUhttps://www.jstor.org/stable/1044367?seq=4#page_scan_tab_contentshttp://money.cnn.com/2012/11/27/news/economy/powerball-lottery-sales/https://smartasset.com/taxes/the-economics-of-the-lottery

The Tragic Tale of Trump and Tourism

It should come as no surprise to anyone that President Donald Trump has been taking an aggressive stance on the amount of immigrants looking to enter the United States from certain countries since he has taken office. While this stance may have stirred up a large amount of controversy, the true extent of the adverse effects are yet to be recognized. Those who look to lose the most in this travel ban ordeal are those associated with the tourism industry in the U.S. Although the legal effects of this ban are still being debated in court, the true impact of this ideology has had a far more profound effect on the citizens of those in other countries who are planning to visit.

The percentage of visitors that are projected to enter the U.S. this year is staggering. International firms believe that the number of visitors are expected to decrease by as much as 8.2% or around 6.3 million tourists. The amount spent on average by a tourist is around 4-5 thousand dollars. If these numbers hold true, that would mean losses of over 27-30 billion dollars annually. However, the true impact on the tourist industry would be felt hardest in countries such as Mexico and Canada. Still, the overall impact on the U.S. economy could mean losses of around 10.8 billion dollars. These numbers are only relative to people who visit the United States for leisure purposes. During the week after President Trump originally announced his travel ban, the U.S. saw approximately a $185 million loss on business travel expenses alone.

The tourism industry is a massive generator of revenue for the United States economy. Tourism directly provides the U.S. with more than 8.1 million jobs. The projected losses in revenue will most likely be felt in most of the major cities rather than less densely populated areas, which could mean trouble for employment. However, this will not have a profound effect on the unemployment rate because 8.1 million jobs does not make up a large portion of total employment, and a prolonged cyclical decrease in tourism would not see devastating effects on employment. Cities such as New York City have already started to feel the effects of the travel ban after seeing a 2% decrease in visitors, the first decline after eight consecutive years of increased visitation rates. The projected losses of revenue in New York alone is around $600 million. Other major cities such as Los Angeles are projected to see losses of up to $736 million.

What economists must look at now are whether or not there is a way to reverse the effects of the attempts at a travel ban in the United States. Congress can make efforts to reverse the ban by adding increased pressure towards Trump’s executive orders. However, even if the ban is completely lifted, the effects of Trump’s harsh rhetoric are more of a permanent issue. Citizens of every other country have received the message that the Tump administration does not look kindly towards outsiders, not matter which country they may be from. The hesitation of others to visit the United States is warranted because no one knows at what time their country could be added to the list of banned travelers.

The policy of protectionism only chokes the economy of the United States, as it’s obvious effects are a decrease in GDP due to a lack of net exports. Factors such as the trade war with China that Trump has been outspoken about could mean massive losses to the GDP. Other side effects of the protectionist ideals and anti-immigration laws include decreases in industries such as tourism. Although the travel ban has been minimized, that does not mean it’s effects will be minimized on the tourism industry as well. This slowdown in the U.S. tourist industry will be felt for the entirety of Trump’s presidential term.

-Jack Dion

Sources

https://www.bostonglobe.com/lifestyle/travel/2017/02/14/trump-ban-causes-tourism-drop-and-industry-fears-lasting-effect/yzMAVzeLvqywP8gEekoFsL/story.html

http://www.chicagotribune.com/news/nationworld/ct-trump-travel-ban-deters-tourists-20170306-story.html

http://www.foxnews.com/travel/2017/03/01/travel-industry-experts-warn-us-tourism-could-take-major-hit-under-trump.html

http://time.com/money/4662727/trump-travel-ban-immigration-tourism/

http://time.com/money/4687114/trump-slump-foreign-tourism-us-immigration-travel/