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Conditional Convergence, Education Spending, Lottery, Earmarked Funds
Using Barro regression analysis, this paper finds evidence that per capita state spending on education converged from 1977 to 2006 across the U.S. states. Convergence was conditional on a states passage of a lottery for education during that time period. Despite evidence that the convergence of state education spending was conditional on the passage of an education lottery, the relative increase in education spending among many states that passed education lotteries was much greater than the revenue from the lotteries themselves. So, education lotteries seemed to be part of a larger bundle of policies in low spending states to increase education funding.
Of all the functions of state and local government, education is both the largest and the most important. In 2006, state and local government direct expenditures were $2.12 trillion dollars. Direct expenditures on education were $728 billion, just over one-third of the total spending. No other single category of spending in state and local government finance rivals education in the number of dollars spent.
There is clear competition among states over education funding. Legislatures and advocacy groups in states lagging behind their neighbors often will cite this fact as a reason to increase education spending. A popular choice among states recently has been to initiate a state lottery with the proceeds earmarked for education. From 1977 to 2006, sixteen states either started lotteries, which dedicated net proceeds exclusively for education, or redefined their existing lottery to earmark net proceeds to education. In every case, the lottery was hailed as a resounding success, but have these sixteen states that passed lotteries for education recently seen a relative increase in funding verses the other states? This paper addresses that question.