Objective. Since the early 1970s, income inequality in the United States has increased dramatically. We examine the impact of state lotteries on income inequality in the American states from 1976–1995.

Methods. We use cross-sectional time-series data to evaluate the effect of lotteries as well as those of other state tax policies, redistributive programs, and demographic factors on income inequality.

Results. We find that state lotteries foster income concentration. Ceteris paribus, states with lotteries have higher levels of income inequality than those states without a lottery. We also find that additional demographic and policy factors have an impact on income inequality in the states.

Conclusions. One of the most important policy-oriented determinants of income inequality is the lottery and a significant portion of the increase in income inequality over our two-decade time period is attributable to the increasing prevalence and popularity of state lotteries.