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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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Listed:
  • Guido W. Imbens
  • Donald B. Rubin
  • Bruce I. Sacerdote

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.

Suggested Citation

  • Guido W. Imbens & Donald B. Rubin & Bruce I. Sacerdote, 2001. "Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players," American Economic Review, American Economic Association, vol. 91(4), pages 778-794, September.
  • Handle: RePEc:aea:aecrev:v:91:y:2001:i:4:p:778-794
    Note: DOI: 10.1257/aer.91.4.778
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • H27 - Public Economics - - Taxation, Subsidies, and Revenue - - - Other Sources of Revenue

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