Estimating the Effect of Unearned Income on Labor Earnings, Savings, and Consumption: Evidence from a Survey of Lottery Players
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-1980's, 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. (JEL C81, D12, E21, J22, J26)
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The unearned income from winning the lottery generates a very similar MPE as student debt forgiveness.
“The most similar shock is perhaps the unearned income from winning the lottery (Imbens et al., 2001), which generates a very similar MPE as student debt forgiveness.”
From Student Loan Forgiveness (2025) · cites this paper as Imbens et al., 2001
In the case of student loan forgiveness, the precise value of the shock to lifetime wealth is known, allowing the approach of annuitizing the forgiveness over the remaining lifetime.
“In the case of student loan forgiveness, we know the precise value of the shock to lifetime wealth, allowing us to follow the approach taken in the literature on lottery windfalls annuitizing the forgiveness over the remaining lifetime”
From Student Loan Forgiveness (2025) · cites this paper as Imbens et al., 2001
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Arkhangelsky, D., & Imbens, G. (2024) · The Econometrics Journal · doi:10.1093/ectj/utae014 · Cited by 50 · see citing works
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- Authors
- Imbens, G. W., Rubin, D. B., & Sacerdote, B. I.
- Affiliations
- University of California, Los Angeles (US)
- Harvard University (US)
- Dartmouth College (US)
- Venue
- American Economic Review
- Publisher
- American Economic Association
- Published
- 2001-09-01
- Volume
- 91
- Issue
- 4
- Pages
- 778-794
- ISSN
- 0002-8282 (ISSN-L)
- OpenAlex
- W3125049278
- Cited by
- 512
- References
- 0
- Citations by year
- 2026: 15 · 2025: 26 · 2024: 48 · 2023: 25 · 2022: 41 · 2021: 38 · 2020: 29 · 2019: 20 · 2018: 30 · 2017: 22 · 2016: 23 · 2015: 28 · 2014: 21 · 2013: 18 · 2012: 17
- FWCI
- 35.12
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- American Economic Review (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Labor market dynamics and wage inequality
- Social Sciences › Gender Studies › Gender, Labor, and Family Dynamics
- Keywords
- unearned income, lottery winners, lottery prizes, labor income, leisure consumption, savings, consumption
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