Cesarini, David Lindqvist, Erik Notowidigdo, Matthew J. Östling, Robert
Year of Publication:
IFN Working Paper 1094
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.
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