Friday, September 21, 2012

When governments compete for lottery revenue

A state-sponsored lottery is a tax on stupid people, and one may not object on its existence for this reason. Except that people may be stupid for reasons beyond their control. But let us assume that it is a tax that enhances overall well-being, for example because it drives out more harmful taxes. Wouldn't all government want to offer a lottery, especially as they can have a monopoly on the market? That is without counting with other jurisdictions, such as the Canadian federal government that may want to participate where provinces already run lotteries.

Étienne Desjardins, Mélina Longpré and François Vaillancourt explain how the provinces got rid of this unwelcome competitor. At the end of the 1970's, Loto-Canada was encroaching on the provincial lotteries, and an cartel-like agreement was struck: the provincial lotteries bought out the federal one, and they are paying to this date for the privilege of this monopoly. And the provinces got very good deal, as the agreement did not foresee the growth of this market. Maybe the federal government should threaten to reintroduce Loto-Canada to tease out a better agreement.

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