Government-sponsored lotteries can be traced back at least as far as Caesar Augustus, who instituted legalized gambling for the purpose of rebuilding Rome (Mote, 1984). We are also told that Queen Elizabeth introduced a lottery in 1549, and that lotteries were used to provide financial support for the Virginia Company's founding of Jamestown (Johnson, 1960). No less authority on the topic than Captain John Smith reported that lotteries were "the reall and substantial food by which Virginia has been nourished." (Johnson, 1960: 161 .) Later, lotteries were used by the Continental Congress and several colonies to fund the Revolutionary War, and such venerable institutions as Harvard, Yale, Princeton, and Dartmouth benefited from their use (Kaplan, 1984).
In more recent times, lotteries provided an important source of revenues for the depressed post-Civil War Southern states. But criticism regarding their moral implications and corruption in their operation is given as the explanation for Congressional action that foreclosed state lotteries in 1895 by prohibiting the use of the mail for distributing lottery tickets and information (Tillett, 1983). In that same year, Congress passed a national income tax, which was struck down by the court. Some might argue that the demise of state lotteries was related to the federal government's attempt to extend its ability to collect revenues.
In 1988, 28 states have lotteries, with the oldest system having been started in 1964. Net proceeds for 1986 exceeded $5 billion, bringing in more revenue * The authors are graduate student and Alumni Professor of Economics, Clemson University, respectively. They express appreciation for seminal questions and comments provided by Gordon Tullock, for comments received from participants in Clemson's Seminar in Public Sector Economics, for helpful criticisms given by Roger Meiners, and for research findings provided by Amanda Driver. The usual caveat applies.