Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players
Guido W. Imbens, Donald B. Rubin, Bruce I. Sacerdote
American Economic Review · 2001 · Volume 91 · Issue 4
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.
Keywords
Consumer Economics: Empirical Analysis, Time Allocation and Labor Supply, Wage Level and Structure, Wage Differentials, Taxation, Subsidies, and Revenues: Other Sources of Revenue
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