IDEAS home Printed from https://ideas.repec.org/p/tiu/tiucen/43407245-d868-4cec-b289-c1b28024aca6.html
   My bibliography  Save this paper

Estimating the effect of unearned income on labor supply, earnings, savings and consumption : Evidence from a survey of lottery players

Author

Listed:
  • Imbens, G.W.

    (Tilburg University, Center For Economic Research)

  • Rubin, D.
  • Sacerdote, B.

Abstract

Knowledge of the effect of unearned income on economic behavior of individuals in general, and on labor supply in particular, is of great importance to policy makers. Estimation of income effects, however, is a difficult problem because income is not randomly assigned and exogenous changes in income are difficult to identify. Here we exploit the randomized assignment of large amounts of money over long periods of time through lotteries. We carried out a survey of people who played the lottery in the mid-eighties and estimate the effect of lottery winnings on their subsequent earnings, labor supply, consumption, and savings. We find that winning a modest prize ($15,000 per year for twenty years) does not affect labor supply or earnings substantially. Winning such a prize does not considerably reduce savings. Winning a much larger prize ($80,000 rather than $15,000 per year) reduces labor supply as measured by hours, as well as participation and social security earnings; elasticities for hours and earnings are around -0.20 and for participation around -0.14. Winning a large versus modest amount also leads to increased expenditures on cars and larger home values, although mortgages values appear to increase by approximately the same amount. Winning $80,000 increases overall savings, although savings in retirement accounts are not significantly affected. The results do not vary much by gender, age, or prior employment status. There is some evidence that for those with zero earnings prior to winning the lottery there is a positive effect of winning a small prize on subsequent labor market participation.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from ano
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Imbens, G.W. & Rubin, D. & Sacerdote, B., 1999. "Estimating the effect of unearned income on labor supply, earnings, savings and consumption : Evidence from a survey of lottery players," Discussion Paper 99.34, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:43407245-d868-4cec-b289-c1b28024aca6
    as

    Download full text from publisher

    File URL: https://pure.uvt.nl/ws/portalfiles/portal/1255904/IGWRDBSB5616764.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thaler, Richard H, 1990. "Saving, Fungibility, and Mental Accounts," Journal of Economic Perspectives, American Economic Association, vol. 4(1), pages 193-205, Winter.
    2. 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.
    3. Behrman, Jere R & Pollak, Robert A & Taubman, Paul, 1982. "Parental Preferences and Provision for Progeny," Journal of Political Economy, University of Chicago Press, vol. 90(1), pages 52-73, February.
    4. 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.
    5. Harold W. Watts & Robert Avery & David Elesh & David Horner & M. J. Lefcowitz & John Mamer & Dale Poirier & Seymour Spilerman & Sonia Wright, 1974. "The Labor-Supply Response of Husbands," Journal of Human Resources, University of Wisconsin Press, vol. 9(2), pages 181-200.
    6. V. Joseph Hotz & Guido W. Imbens & Julie H. Mortimer, 1999. "Predicting the Efficacy of Future Training Programs Using Past Experiences," NBER Technical Working Papers 0238, National Bureau of Economic Research, Inc.
    7. Joshua Angrist & Alan Krueger, 1998. "Empirical Strategies in Labor Economics," Working Papers 780, Princeton University, Department of Economics, Industrial Relations Section..
    8. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    9. Edward L. Glaeser & Bruce Sacerdote & José A. Scheinkman, 1996. "Crime and Social Interactions," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 507-548.
    10. Angrist, Joshua D. & Krueger, Alan B., 1999. "Empirical strategies in labor economics," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 23, pages 1277-1366, Elsevier.
    11. Jerry A. Hausman & David A. Wise, 1985. "Technical Problems in Social Experimentation: Cost versus Ease of Analysis," NBER Chapters, in: Social Experimentation, pages 187-220, National Bureau of Economic Research, Inc.
    12. Rajeev H. Dehejia & Sadek Wahba, 1998. "Causal Effects in Non-Experimental Studies: Re-Evaluating the Evaluation of Training Programs," NBER Working Papers 6586, National Bureau of Economic Research, Inc.
    13. Frank Stafford, 1985. "Income-Maintenance Policy and Work Effort: Learning from Experiments and Labor-Market Studies," NBER Chapters, in: Social Experimentation, pages 95-144, National Bureau of Economic Research, Inc.
    14. Hausman, Jerry A & Wise, David A, 1979. "Attrition Bias in Experimental and Panel Data: The Gary Income Maintenance Experiment," Econometrica, Econometric Society, vol. 47(2), pages 455-473, March.
    15. Felicity M. Skidmore, 1974. "Availability of Data from the Graduated Work Incentive Experiment," Journal of Human Resources, University of Wisconsin Press, vol. 9(2), pages 265-278.
    16. James J. Heckman & Hidehiko Ichimura & Petra Todd, 1998. "Matching As An Econometric Evaluation Estimator," Review of Economic Studies, Oxford University Press, vol. 65(2), pages 261-294.
    17. repec:fth:prinin:401 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Adam Looney & Monica Singhal, 2005. "The effect of anticipated tax changes on intertemporal labor supply and the realization of taxable income," Finance and Economics Discussion Series 2005-44, Board of Governors of the Federal Reserve System (U.S.).
    2. Louis Kaplow, 2000. "A Framework for Assessing Estate and Gift Taxation," NBER Working Papers 7775, National Bureau of Economic Research, Inc.
    3. Imbens, Guido W. & Pizer, William A., 2000. "The Analysis of Randomized Experiments with Missing Data," Discussion Papers 10596, Resources for the Future.
    4. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
    5. V. Joseph Hotz & Guido W. Imbens & Julie H. Mortimer, 1999. "Predicting the Efficacy of Future Training Programs Using Past Experiences," NBER Technical Working Papers 0238, National Bureau of Economic Research, Inc.
    6. Andrew V. Stephenson & Amanda Wilsker, 2016. "Consumption Effects of Foreign Remittances in Jamaica," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 22(3), pages 309-320, August.
    7. Mishra, Ashok K. & Chang, Hung-Hao, 2012. "Can off farm employment affect the privatization of social safety net? The case of self-employed farm households," Food Policy, Elsevier, vol. 37(1), pages 94-101.
    8. 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.
    9. Kearney, Melissa Schettini, 2005. "State lotteries and consumer behavior," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2269-2299, December.
    10. Raj Chetty, 2012. "Bounds on Elasticities With Optimization Frictions: A Synthesis of Micro and Macro Evidence on Labor Supply," Econometrica, Econometric Society, vol. 80(3), pages 969-1018, May.
    11. Andrew Henley, 2004. "House Price Shocks, Windfall Gains and Hours of Work: British Evidence," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 66(4), pages 439-456, September.
    12. Alexander Gelber & Timothy J. Moore & Alexander Strand, 2017. "The Effect of Disability Insurance Payments on Beneficiaries' Earnings," American Economic Journal: Economic Policy, American Economic Association, vol. 9(3), pages 229-261, August.
    13. Ing-Haw Cheng & Eric French, 2000. "The effect of the run-up in the stock market on labor supply," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 25(Q IV), pages 48-65.
    14. James M. Poterba, 2000. "Stock Market Wealth and Consumption," Journal of Economic Perspectives, American Economic Association, vol. 14(2), pages 99-118, Spring.
    15. Michael D. Hurd & Monika Reti & Susann Rohwedder, 2009. "The Effect of Large Capital Gains or Losses on Retirement," NBER Chapters, in: Developments in the Economics of Aging, pages 127-163, National Bureau of Economic Research, Inc.
    16. Ugo Colombino, 2015. "Five Crossroads on the Way to Basic Income. An Italian Tour," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 1(3), pages 353-389, November.
    17. Marianne Bertrand & Sendhil Mullainathan & Douglas Miller, 2003. "Public Policy and Extended Families: Evidence from Pensions in South Africa," The World Bank Economic Review, World Bank Group, vol. 17(1), pages 27-50, June.
    18. Monica Paiella, 2009. "The Stock Market, Housing And Consumer Spending: A Survey Of The Evidence On Wealth Effects," Journal of Economic Surveys, Wiley Blackwell, vol. 23(5), pages 947-973, December.
    19. Alisa C. Lewin & Eric Maurin, 2005. "The Effect of Family Size on Incentive Effects of Welfare Transfers in Two-Parent Families," Evaluation Review, , vol. 29(6), pages 507-529, December.
    20. Vighneswara Swamy, 2022. "Financial wealth effects and consumption expenditure," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(2), pages 1933-1946, April.
    21. Shankar Ghimire & Kul Prasad Kapri, 2020. "Does the Source of Remittance Matter? Differentiated Effects of Earned and Unearned Remittances on Agricultural Productivity," Economies, MDPI, vol. 8(1), pages 1-15, January.
    22. Courtney C. Coile, 2015. "Economic Determinants Of Workers’ Retirement Decisions," Journal of Economic Surveys, Wiley Blackwell, vol. 29(4), pages 830-853, September.
    23. Tao Gong, 2009. "Do Parental Transfers Reduce Youths' Incentives to Work?," LABOUR, CEIS, vol. 23(4), pages 653-676, December.
    24. de Carvalho Filho, Irineu Evangelista, 2008. "Old-age benefits and retirement decisions of rural elderly in Brazil," Journal of Development Economics, Elsevier, vol. 86(1), pages 129-146, April.
    25. Purvi Sevak, 2002. "Wealth Shocks and Retirement Timing: Evidence from the Nineties," Working Papers wp027, University of Michigan, Michigan Retirement Research Center.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guido W. Imbens & Jeffrey M. Wooldridge, 2009. "Recent Developments in the Econometrics of Program Evaluation," Journal of Economic Literature, American Economic Association, vol. 47(1), pages 5-86, March.
    2. Alberto Abadie & Guido W. Imbens, 2002. "Simple and Bias-Corrected Matching Estimators for Average Treatment Effects," NBER Technical Working Papers 0283, National Bureau of Economic Research, Inc.
    3. Michael Gerfin & Michael Lechner, 2002. "A Microeconometric Evaluation of the Active Labour Market Policy in Switzerland," Economic Journal, Royal Economic Society, vol. 112(482), pages 854-893, October.
    4. Sergio Firpo, 2007. "Efficient Semiparametric Estimation of Quantile Treatment Effects," Econometrica, Econometric Society, vol. 75(1), pages 259-276, January.
    5. Jochen Kluve & Boris Augurzky, 2007. "Assessing the performance of matching algorithms when selection into treatment is strong," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 22(3), pages 533-557.
    6. V. Joseph Hotz & Guido W. Imbens & Jacob A. Klerman, 2000. "The Long-Term Gains from GAIN: A Re-Analysis of the Impacts of the California GAIN Program," NBER Working Papers 8007, National Bureau of Economic Research, Inc.
    7. Susan Athey & Guido W. Imbens, 2006. "Identification and Inference in Nonlinear Difference-in-Differences Models," Econometrica, Econometric Society, vol. 74(2), pages 431-497, March.
    8. Alberto Abadie & Guido W. Imbens, 2012. "A Martingale Representation for Matching Estimators," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 107(498), pages 833-843, June.
    9. Michael Lechner, 2002. "Some practical issues in the evaluation of heterogeneous labour market programmes by matching methods," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 165(1), pages 59-82, February.
    10. V. Joseph Hotz & Guido W. Imbens & Jacob A. Klerman, 2006. "Evaluating the Differential Effects of Alternative Welfare-to-Work Training Components: A Reanalysis of the California GAIN Program," Journal of Labor Economics, University of Chicago Press, vol. 24(3), pages 521-566, July.
    11. Daniel Kandie & Khan Jahirul Islam, 2022. "A new era of microfinance: The digital microcredit and its impact on poverty," Journal of International Development, John Wiley & Sons, Ltd., vol. 34(3), pages 469-492, April.
    12. 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.
    13. Michael Lechner, 2004. "Sequential Matching Estimation of Dynamic Causal Models," University of St. Gallen Department of Economics working paper series 2004 2004-06, Department of Economics, University of St. Gallen.
    14. V. Joseph Hotz & Guido W. Imbens & Jacob A. Klerman, 2000. "The Long-Term Gains from GAIN: A Re-Analysis of the Impacts of the California GAIN Program," NBER Working Papers 8007, National Bureau of Economic Research, Inc.
    15. Keisuke Hirano & Guido W. Imbens & Geert Ridder, 2003. "Efficient Estimation of Average Treatment Effects Using the Estimated Propensity Score," Econometrica, Econometric Society, vol. 71(4), pages 1161-1189, July.
    16. Martin Eichler & Michael Lechner, 2000. "Some Econometric Evidence on the Effectiveness of Active Labour Market Programmes in East Germany," William Davidson Institute Working Papers Series 318, William Davidson Institute at the University of Michigan.
    17. Andrea Pufahl & Christoph R. Weiss, 2009. "Evaluating the effects of farm programmes: results from propensity score matching," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 36(1), pages 79-101, March.
    18. Dettmann, E. & Becker, C. & Schmeißer, C., 2011. "Distance functions for matching in small samples," Computational Statistics & Data Analysis, Elsevier, vol. 55(5), pages 1942-1960, May.
    19. Jeffrey Smith, 2000. "A Critical Survey of Empirical Methods for Evaluating Active Labor Market Policies," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 136(III), pages 247-268, September.
    20. Mohammed SHARIF, 2000. "Inverted “S”—The complete neoclassical labour-supply function," International Labour Review, International Labour Organization, vol. 139(4), pages 409-435, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tiu:tiucen:43407245-d868-4cec-b289-c1b28024aca6. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Richard Broekman (email available below). General contact details of provider: http://center.uvt.nl .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.