Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1094: The Effect of Wealth on Individual and Household Labor Supply: Evidence from Swedish Lotteries

David Cesarini (), Erik Lindqvist (), Matthew J. Notowidigdo () and Robert Östling ()
Additional contact information
David Cesarini: New York University, Postal: and Research Institute of Industrial Economics (IFN), Stockholm, Sweden
Erik Lindqvist: Stockholm School of Economics, Postal: NBER,and Research Institute of Industrial Economics (IFN), Stockholm, Sweden
Matthew J. Notowidigdo: Northwestern University, Postal: and NBER
Robert Östling: Institute for Interntional Economic Studies (IIES), Postal: Stockholm University

Abstract: We study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. We 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.

Keywords: Labor supply; household labor supply; income effect; marginal propensity to earn; substitution effect; uncompensated elasticity; compensated elasticity; Frisch elasticity; household bargaining; unitary model of the household; self-employment; taxation

JEL-codes: H20; J12; J22; J24; J26; J62

41 pages, November 23, 2015

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