The Ticket to Easy Street? The Financial Consequences of Winning the Lottery
AbstractA fundamental question faced by policymakers is how best to help individuals who are in financial trouble. This paper examines the consequences of the most basic approach: giving people large cash transfers. To determine whether this prevents or merely postpones bankruptcy, we exploit a unique dataset of Florida Lottery winners linked to bankruptcy records. Results show that although recipients of $50,000 to $150,000 are 50 percent less likely to file for bankruptcy in the two years after winning relative to small winners, they are equally more likely to file three to five years afterward. Furthermore, bankruptcy records indicate that even though the median winner of a large cash prize could have paid off all of his unsecured debt or increased equity in new or existing assets, he chose not to do either. Consequently, although we cannot be sure other recipients of financial assistance would react in the same way lottery players did, our results do suggest that some skepticism regarding the long-term effect of cash transfers may be warranted.
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Bibliographic InfoPaper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 344.
Date of creation: Apr 2008
Date of revision: Apr 2009
Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-17 (All new papers)
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Lotteries and irrationality
by chris dillow in Stumbling and Mumbling on 2009-01-22 15:08:34
- Don McNay: Bailouts Don't Work: The Lotto Winners Study
by Don McNay in huffington post business on 2010-09-07 21:13:15
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