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Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players

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Author Info
Guido W. Imbens
Donald B. Rubin
Bruce I. Sacerdote

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Abstract

This paper provides empirical evidence about the effect of unearned income on earnings, consumption, and savings. Using an original survey of people playing the lottery in Massachusetts in the mid-1980s, we analyze the effects of the magnitude of lottery prizes on economic behavior. The critical assumption is that among lottery winners the magnitude of the prize is randomly assigned. We find that unearned income reduces labor earnings, with a marginal propensity to consume leisure of approximately 11 percent, with larger effects for individuals between 55 and 65 years old. After receiving about half their prize, individuals saved about 16 percent.

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Publisher Info
Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 91 (2001)
Issue (Month): 4 (September)
Pages: 778-794
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Handle: RePEc:aea:aecrev:v:91:y:2001:i:4:p:778-794

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  1. Ashenfelter, Orley & Ham, John, 1979. "Education, Unemployment, and Earnings," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages S99-116, October. [Downloadable!] (restricted)
    Other versions:
  2. Charles T. Clotfelter & Philip J. Cook, 1989. "The Demand for Lottery Products," NBER Working Papers 2928, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Jerry A. Hausman & David A. Wise, 1985. "Technical Problems in Social Experimentation: Cost versus Ease of Analysis," NBER Working Papers 1061, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  4. Johnson, Terry R & Pencavel, John H, 1984. "Dynamic Hours of Work Functions for Husbands, Wives, and Single Females," Econometrica, Econometric Society, vol. 52(2), pages 363-89, March. [Downloadable!] (restricted)
  5. MaCurdy, Thomas E, 1981. "An Empirical Model of Labor Supply in a Life-Cycle Setting," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1059-85, December. [Downloadable!] (restricted)
  6. Farrell, Lisa & Walker, Ian, 1999. "The welfare effects of lotto: evidence from the UK," Journal of Public Economics, Elsevier, vol. 72(1), pages 99-120, April. [Downloadable!] (restricted)
  7. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1993. "The Carnegie Conjecture: Some Empirical Evidence," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 413-35, May. [Downloadable!] (restricted)
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  8. Killingsworth, Mark R. & Heckman, James J., 1987. "Female labor supply: A survey," Handbook of Labor Economics, in: O. Ashenfelter & R. Layard (ed.), Handbook of Labor Economics, edition 1, volume 1, chapter 2, pages 103-204 Elsevier. [Downloadable!] (restricted)
  9. Ashenfelter, Orley & Heckman, James J, 1974. "The Estimation of Income and Substitution Effects in a Model of Family Labor Supply," Econometrica, Econometric Society, vol. 42(1), pages 73-85, January. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ricardo M. Sousa, 2009. "Wealth Effetcs on Consumption: Evidence from the euro area," NIPE Working Papers 12/2009, NIPE - Universidade do Minho. [Downloadable!]
    Other versions:
  2. Melissa S. Kearney, 2005. "The Economic Winners and Losers of Legalized Gambling," NBER Working Papers 11234, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Miles S. Kimball & Matthew D. Shapiro, 2008. "Labor Supply: Are the Income and Substitution Effects Both Large or Both Small?," NBER Working Papers 14208, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Raj Chetty, 2006. "A Bound on Risk Aversion Using Labor Supply Elasticities," NBER Working Papers 12067, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Karakaya, Güngör, 2008. "Early cessation of activity in the labour market: impact of supply and demand factors," MPRA Paper 13390, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  6. Jeffrey R. Brown & Courtney C. Coile & Scott J. Weisbenner, 2006. "The Effect of Inheritance Receipt on Retirement," NBER Working Papers 12386, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Cletus C. Coughlin & Thomas A. Garrett, 2008. "Income and lottery sales: transfers trump income from work and wealth," Working Papers 2008-004, Federal Reserve Bank of St. Louis. [Downloadable!]
  8. Mark L. Hoekstra & Scott Hankins & Paige Marta Skiba, 2008. "The Ticket to Easy Street? The Financial Consequences of Winning the Lottery," Working Papers 344, University of Pittsburgh, Department of Economics, revised Oct 2009. [Downloadable!]
  9. Julia Lynn Coronado & Maria Perozek, 2003. "Wealth effects and the consumption of leisure: retirement decisions during the stock market boom of the 1900s," Finance and Economics Discussion Series 2003-20, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
  10. Lindahl, Mikael, 2002. "Estimating the Effect of Income on Health and Mortality Using Lottery Prizes as Exogenous Source of Variation in Income," IZA Discussion Papers 442, Institute for the Study of Labor (IZA). [Downloadable!]
  11. Courtney C. Coile & Phillip B. Levine, 2004. "Bulls, Bears, and Retirement Behavior," NBER Working Papers 10779, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  12. Mark L. Hoekstra & Scott Hankins, 2007. "Lucky in Life, Unlucky in Love? The Effect of Random Income Shocks on Marriage and Divorce," Working Papers 329, University of Pittsburgh, Department of Economics, revised Apr 2009. [Downloadable!]
  13. Gaobo Pang & University of Maryland, 2006. "Tax-Deferred Savings and Early Retirement," Computing in Economics and Finance 2006 31, Society for Computational Economics. [Downloadable!]
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