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American Economic Review: Vol. 91 No. 4 (September 2001)

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Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players

Article Citation

Imbens, Guido W., Donald B. Rubin, and 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, 91(4): 778-794.

DOI: 10.1257/aer.91.4.778

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.

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Authors

Imbens, Guido W. (UCLA and NBER)
Rubin, Donald B. (Harvard U)
Sacerdote, Bruce I. (Dartmouth College)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
J22: Time Allocation and Labor Supply
J31: Wage Level and Structure; Wage Differentials
H27: Taxation, Subsidies, and Revenues: Other Sources of Revenue


American Economic Review


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