Does Earmarking Matter? The Case of State Lottery Profits and Educational Spending

This paper studies the effects of earmarking state lottery profits for educational spending. Since educational expenditures generally exceed the funds earmarked for education by a wide margin, this policy does not meaningfully constrain the legislature's ability to allocate aggregate profits across expenditure categories. Conventional economic reasoning therefore implies that this policy should have no effect on overall educational spending. I find, on the contrary, that a dollar of lottery profits earmarked for education increases current educational spending by roughly 36 cents more than a non-earmarked dollar and by 60 cents more than a dollar earmarked for other uses.