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Taxing windfall money: A quasi‐experimental study

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  • Álvaro Muñiz‐Fernández
  • Levi Pérez

Abstract

This paper examines individuals' reaction to windfall income taxation. We take advantage of similar tax reforms on lottery winnings in Portugal and Spain in 2013 to study effects on lottery participation in both countries. Using a Synthetic Difference in Differences approach on a database of 348 draws from EuroMillions, our results indicate that taxation caused a decline in sales by 11.75% in low jackpot draws, with no significant effects for larger jackpots. These findings suggest that individuals fail to adjust their behavior when potential gains are large, likely due to overestimating the likelihood of winning and underestimating the tax burden.

Suggested Citation

  • Álvaro Muñiz‐Fernández & Levi Pérez, 2026. "Taxing windfall money: A quasi‐experimental study," Contemporary Economic Policy, Western Economic Association International, vol. 44(2), pages 319-332, April.
    • Handle: RePEc:bla:coecpo:v:44:y:2026:i:2:p:319-332
    DOI: 10.1111/coep.70002
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