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Why the Lottery is a Regressive Tax on the Nation’s Poorest

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Every year, Americans spend a mind-blowing $70.1 billion on the lottery. That works out to an average of $630 per household, representing more money spent on gambling than on books, sports tickets, recorded music sales, video games, and the movie box office – all combined!

U.S. consumption of lottery tickets

This is according to data visualization expert Max Galka, who published a series of posts and visualizations on the economics of the lottery in his Metrocosm blog. The numbers he provides are both astounding and alarming, ultimately making a convincing case that the lottery is a regressive and inefficient tax on some of the nation’s poorest people.

Let’s start with the economics. Here’s the math on the New York Lottery, which is a starting point to understanding the inefficiency behind lottos in the first place:

New York Lottery diagram

To sum up the math:

  • 51% of each dollar goes to tax revenue: federal, state, and municipal.
  • 18% goes to covering expenses, such as advertising or retailer commissions. This is the part that makes the process inefficient.
  • 31% of each dollar actually goes to the prize money, and that basically sums up the terrible odds behind winning in the first place.

In other words, for every $3 spent on the New York Lottery, less than $1 is paid out to winners, while the other $2 is going to expenses and tax revenues.

The House Advantage

As Max notes in one of his posts, the lottery itself is not a tax – but the artificially inflated price of lottery tickets ultimately ends up as an indirect excise tax:

House Advantage in Lottery

Choosing to play the lottery is voluntary. But much like sales taxes, the inflated price of lottery tickets is not.

It is illegal for anyone but the state to run a lottery. So unlike casinos, which face competition from other casinos, lotteries operate as a monopoly, so they can set their pricing artificially high, or equivalently, their payout rates artificially low.

While it is true that many people stay away from lottery tickets because the odds are not in their favor, there are groups of people that are far less fortunate. They and their families bear the brunt of inefficient lotto economics, as well as the house advantage.

Who’s Buying Lottery Tickets?

Lottery sales follow the 80/20 rule. It turns out that 82% of all sales come from 20% of the players.

Many of these players are compulsive gamblers, and many also come from lower income brackets.

In this post, which includes some key assumptions, Max shows that the “lottery tax” is a significant burden for many low-income households even in contrast with other taxes:

Lotto Tax

Want more perspective on lottery ticket sales? We previously showed a similar comparison of U.S. consumption numbers in real-time.

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Misc

Histomap: Visualizing the 4,000 Year History of Global Power

We examine an ambitious timeline that details the power of various civilizations going all the way back to 2,000 B.C.

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Imagine creating a timeline of your country’s whole history stretching back to its inception.

It would be no small task, and simply weighing the relative importance of so many great people, technological achievements, and pivotal events would be a tiny miracle in itself.

While that seems like a challenge, imagine going a few steps further. Instead of a timeline for just one country, what about creating a graphical timeline showing the history of the entire world over a 4,000 year time period, all while having no access to computers or the internet?

An All-Encompassing Timeline?

Today’s infographic, created all the way back in 1931 by a man named John B. Sparks, maps the ebb and flow of global power going all the way back to 2,000 B.C. on one coherent timeline.

View a high resolution version of this graphic
histomap timeline

Histomap, published by Rand McNally in 1931, is an ambitious attempt at fitting a mountain of historical information onto a five-foot-long poster. The poster cost $1 at the time, which would equal approximately $18 when accounting for inflation.

Although the distribution of power is not quantitatively defined on the x-axis, it does provide a rare example of looking at historic civilizations in relative terms. While the Roman Empire takes up a lot of real estate during its Golden Age, for example, we still get a decent look at what was happening in other parts of the world during that period.

The visualization is also effective at showing the ascent and decline of various competing states, nations, and empires. Did Sparks see world history as a zero-sum exercise; a collection of nations battling one another for control over scarce territory and resources?

Timeline Caveats

Crowning a world leader at certain points in history is relatively easy, but divvying up influence or power to everyone across 4,000 years requires some creativity, and likely some guesswork, as well. Some would argue that the lack of hard data makes it impossible to draw these types of conclusions (though there have been other more quantitative approaches.)

Another obvious criticism is that the measures of influence are skewed in favor of Western powers. China’s “seam”, for example, is suspiciously thin throughout the length of the timeline. Certainly, the creator’s biases and blind spots become more apparent in the information-abundant 21st century.

Lastly, Histomap refers to various cultural and racial groups using terms that may seem rather dated to today’s viewers.

The Legacy of Histomap

John Spark’s creation is an admirable attempt at making history more approachable and entertaining. Today, we have seemingly limitless access to information, but in the 1930s an all encompassing timeline of history would have been incredibly useful and groundbreaking. Indeed, the map’s publisher characterized the piece as a useful tool for examining the correlation between different empires during points in history.

histomap foreword

Critiques aside, work like this paved the way for the production of modern data visualizations and charts that help people better understand the world around them today.

Without a map who would attempt to study geography? –John B. Sparks

This post was first published in 2017. We have since updated it, adding in new content for 2021.

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Financing

Which Country is the Cheapest for Starting a Business?

These maps show the most (and least) costly countries for starting a business by relative costs.

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Cost of Starting A Business By Country Share

Which Country is the Cheapest for Starting A Business?

Starting a new business isn’t as simple as coming up with an idea.

In addition to the time investment needed to formulate and create a business, there’s often a hefty capital requirement. A new business usually requires paying different fees for licensing, permits, and approvals, and many governments also have minimum on-hand capital requirements.

And costs are relative. Though it might be more costly to start a business in some countries on paper, affordability also takes into account relative income.

These graphics from BusinessFinancing.co.uk use data from the World Bank’s Doing Business 2020 report to examine the startup cost for a small-to-medium-size LLC in the largest business cities across 190 countries.

The Cost of Starting a Business in Different Countries

From a pure cost perspective, the affordability of starting a business is extremely dependent on where you are located.

Some countries make the cost of business extremely low to encourage more economic activity. Others have high or nearly inaccessible fees to protect existing businesses, or to simply cash in on the entrepreneurial spirit.

CountryCost (2020 USD)% of Monthly Income
Venezuela0-%
Rwanda0-%
Slovenia0-%
Kyrgyzstan80.1
Sudan80.13
Timor Leste100.09
Azerbaijan110.04
Kazakhstan120.02
Ukraine120.06
Egypt130.07
South Africa130.03
Mauritania140.12
Uzbekistan140.13
Chile160.02
United Kingdom170.01
Belarus180.04
Pakistan200.16
Croatia270.03
Sierra Leone290.81
Armenia300.1
Burundi301.77
Iran310.09
Benin320.38
Liberia320.87
Niger320.78
Afghanistan330.86
Georgia330.1
Mongolia370.17
Romania380.05
Botswana400.08
New Zealand430.02
South Korea470.02
Kosovo49-%
Angola540.63
Togo561.29
Indonesia740.3
Bulgaria750.11
Moldova760.24
Mozambique762.09
Russia770.11
Congo (Democratic Republic of the)802.39
Ireland860.02
Lesotho860.89
Mauritius860.1
Lithuania900.07
Tunisia930.42
Belize990.33
Bhutan1000.45
Madagascar1002.72
Laos1050.68
Montenegro1050.16
Denmark1100.02
Serbia1120.24
Trinidad and Tobago1150.1
Malawi1174.72
Morocco1200.52
Zambia1201.28
Cameroon1251.24
Ghana1251.03
Vietnam1280.73
Tajikistan1361.86
China1380.21
India1420.98
Bangladesh1491.11
Ethiopia1503.21
Honduras1520.85
Czech Republic1580.13
Uganda1633.67
Canada1650.05
Argentina1670.21
Eritrea1744.63
Kiribati1740.7
Estonia1760.11
Sri Lanka1760.56
Turkey1770.28
Myanmar1791.73
Nepal1862.43
Jamaica1890.48
Thailand2010.43
North Macedonia2020.52
Algeria2030.79
Comoros2041.9
Greece2040.14
Slovakia2090.17
Brazil2180.35
Nigeria2231.68
Bahrain2310.14
Micronesia, Federated States of2310.82
Paraguay2320.61
Dominican Republic2330.39
Singapore2380.06
Taiwan239-%
Sweden2590.07
Tonga2620.78
Portugal2680.17
Latvia2870.25
Samoa2961
France3180.11
Tanzania3224.55
The Gambia3266.71
Libya3280.59
Guinea-Bissau3325.72
Senegal3433.35
Kenya3533.01
Peru3550.77
Costa Rica3630.4
Colombia3640.85
Brunei3660.18
Hungary3690.34
South Sudan3735.31
Palau375-%
Australia3770.1
Guinea3806.42
Poland3870.36
Philippines3891.44
Swaziland (Eswatini)4251.59
Guyana4361.29
Namibia4461.15
Papua New Guinea4592.71
Vanuatu4842.04
Mali4938.02
Oman5020.65
Hong Kong5121.2
Germany5240.16
Central African Republic52914.55
Malaysia5670.83
Zimbabwe5765.01
Chad59113.58
Albania5971.71
Marshall Islands610-%
Malta620-%
Japan6410.24
Fiji7051.65
United States of America7250.16
Panama7300.66
Spain7360.34
Cambodia7467.55
Finland7970.23
Yemen80810.7
Kuwait8140.31
Guatemala8192.63
Bosnia and Herzegovina8331.93
Seychelles8420.75
Jordan8602.67
Somalia900-%
Haiti94114.03
Gabon9472.18
Nicaragua9486.6
El Salvador9753.53
Dominica10732.31
Iceland10890.23
Barbados11590.92
Congo (Republic of the)122925.46
Israel12410.41
Saudi Arabia12670.81
Antigua and Barbuda1271-%
Bolivia12935.67
Luxembourg13430.27
Uruguay13441.13
Syria139210.41
Grenada1410-%
Mexico14502.34
Switzerland14630.27
Norway14820.27
Iraq15734.34
Cyprus15760.72
Liechtenstein1619-%
Ecuador16304.23
Bahamas18100.89
Netherlands21900.59
Equatorial Guinea23227.18
Belgium24020.74
Austria24750.71
Lebanon28555.35
Suriname303011.14
Qatar39520.92
San Marino4672-%
Italy48762.02
United Arab Emirates74442.23

At a glance, the cheapest regions for starting a business include Central Asia and Africa.

But the cheapest countries on the dollar for a new startup are Venezuela, Rwanda, and Slovenia. While the former does have fees that only total $0.21, both Rwanda and Slovenia have no fees for new businesses, though Slovenia does have a capital requirement of €7,500.

Expensive countries for new businesses are also spread across the world. There are some in Europe, including Italy at $4,876 and Austria at $2,475, as well as the Americas, including Suriname at $3,030 and Ecuador at $1,630.

The most expensive countries, however, are largely in the Middle East. They include #1 UAE at $7,444, #4 Qatar at $3,952, and #6 Lebanon at $2,855.

Which Country is the Most Affordable for Starting a Business?

Just as costs vary by country, so too does relative affordability.

Though some countries are cheaper than others for starting a business on the dollar, the picture changes when accounting for monthly income. When it comes to the cost of starting a business relative to monthly income, many developed countries take the cake.

Not including countries with missing data, the most affordable countries for starting a business include the UK, Denmark, and Ireland in Europe, South Korea in East Asia, and New Zealand in Oceania. Startup costs in each range from just 1%-2% of monthly income.

The picture is similar in the Americas, where Chile and Canada have the lowest relative fees at 2% and 5% of monthly income respectively. Even the U.S.—which has a decently high cost of $725 for starting a business—is relatively affordable at 16% of monthly income.

Some of the least affordable countries lie in the Middle-East and Central America. Haiti and Suriname have startup costs that are 1,403% and 1,114% of monthly income, while Yemen has affordability rates of 1,070%.

But the least affordable countries are in Africa. Many countries on the continent have startup costs that are more than 100% of monthly income, but the Republic of the Congo and the Central African Republic have affordability rates of 2,546% and 1,455% of monthly income, respectively.

Where is the best place to start a business? It can depend on the barrier to entry. But the biggest barrier takes time and ingenuity: finding the right idea at the right time.

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