The Powerball Regressivity: An Evidence from the World's Largest Lottery Prize

Abstract

On January 13, 2016, the largest jackpot prize in world history took place.  In this paper, we examied the Powerball's regressivity from the 16th drawing with a jackpot prize of $301.8 million to the 20th drawing with a jackpot prize of $1.5 billion.  These last five drawings allowed us to examine whether the regressivity continues to decline and turns progressive as jackpot levels approach the billion-dollar mark.  Our sample include Powerball sales from 44 states and the District of Columbia.  Since the cost of living varied across states/jurisdictions, we used real lottery and income data to estimate income elasticity.  For the 16th through 18th drawings, there is a positive relationship between jackpot level and income elasticity.  However, on the 19th drawing with a jackpot of $949.8 million, the income elasticity declined to 0.554 from 0.900.  On the 20th drawing, the income elasticity increased to 0.649 but remained below 0.900 reached on the 18th drawing.