The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries (WP-15-18)


WP-15-18

David Cesarini, Erik Lindqvist, Matthew Notowidigdo, and Robert Östling

The researchers study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. They find winning a lottery prize modestly reduces labor earnings, with the reduction being immediate, persistent, and similar by age, education, and sex. A calibrated dynamic model of individual labor supply implies an average lifetime marginal propensity to earn out of unearned income of -0.11, and labor-supply elasticities in the lower range of previously reported estimates. The earnings response is stronger for winners than their spouses, which is inconsistent with unitary household labor supply models.


David Cesarini, Assistant Professor of Economics, New York University

Erik Lindqvist, Assistant Professor, Stockholm School of Economics

Matthew Notowidigdo, Associate Professor of Economics and Faculty Fellow, Institute for Policy Research, Northwestern University

Robert Östling, Institute for International Economic Studies, Stockholm University

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