Consumption, Savings, and Earnings Responses to Financial Windfalls

Rajashri Chakrabarti (), Philippe d'Astous (), Kory Kroft, Sheisha Kulkarni (), Vyacheslav Mikhed (), Matthew J. Notowidigdo (), Sahil Raina () and Barry Scholnick ()
Additional contact information
Rajashri Chakrabarti: Federal Reserve Bank of New York
Philippe d'Astous: HEC Montreal
Sheisha Kulkarni: University of Virginia
Vyacheslav Mikhed: Federal Reserve Bank of Philadelphia
Matthew J. Notowidigdo: The University of Chicago Booth School of Business and NBER
Sahil Raina: University of Alberta
Barry Scholnick: University of Alberta

No 2026-130, Working Papers from Becker Friedman Institute for Research In Economics

Abstract: We estimate the causal effects of a financial windfall on consumption, savings, and wage earnings using linked administrative data on a large sample of Canadian lottery winners. Using separate linkages of lottery winners to income tax records and credit bureau data, we estimate how lottery winnings affect consumption measured through credit card spending, savings through financial asset accumulation and debt repayment, and wage earnings from tax records. We then examine how these responses vary across the income distribution. We find that high-income individuals allocated a larger share of lottery winnings to savings and leisure, while low-income individuals spent a larger share on consumption. We illustrate the policy relevance of these heterogeneous responses through three applications: designing fiscal stimulus programs, evaluating a Universal Basic Income (UBI), and determining optimal top tax rates on wage earnings and savings.

JEL-codes: D15 H2 J22 (search for similar items in EconPapers)
Pages: 95 pages
Date: 2026
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https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2026-130.pdf (application/pdf)

Related works:
Working Paper: Consumption, Savings, and Earnings Responses to Financial Windfalls (2026)
Working Paper: Consumption, Savings, and Earnings Responses to Financial Windfalls (2026)
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