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

This paper provides empirical evidence about the effect of unearned income oil 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. Vie critical assumption is that among lottery, winners the magnitude of the prize is randomly, assigned. Ve find that unearned income reduces labor earnings, with a marginal propensity to consume leisure of approximately I I percent, with larger effects for individuals between 55 and 65 years old. After receiving about half their prize, individuals saved about 16 percent.