The lottery is a type of competition in which people pay to enter for a chance to win a prize, such as money or goods. The word is believed to have originated from the Low Countries in the early 15th century, where it was used for municipal lotteries that raised money for town fortifications and to help poor citizens. The term later spread to England, where the first state-sponsored lotteries were held.

State lotteries are a source of revenue for governments, and the proceeds are typically earmarked for specific purposes. Critics have argued that these earmarks are misleading, because the appropriations are simply taken away from the general fund and given to the targeted program at the expense of other needed programs.

A portion of the funds are paid out in prizes, and another portion goes toward administrative costs. The rest may be used for public works projects, such as paving streets or building bridges. A small percentage is usually paid out as commissions to retail lottery outlets and as salaries for lottery officials. The remaining amount is often invested and compounded, generating income that can grow significantly over time. The money can also be withdrawn in lump sums, but this results in the loss of the benefits of investing and compounding over time.

In the United States, a majority of state lottery players are middle-class or upper-middle class, with much lower participation in low-income neighborhoods. In addition, the vast majority of state lotteries are based on random number selection rather than skill-based games, making them less attractive to those who might find the odds of winning far too long.