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
Philippe d'Astous: https://www.hec.ca/en/profs/philippe-dastous
Sheisha Kulkarni: https://www.commerce.virginia.edu/faculty/sk7nn
Matthew J. Notowidigdo: https://www.chicagobooth.edu/faculty/directory/n/matthew-notowidigdo

No 1208, Staff Reports from Federal Reserve Bank of New York

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.

Keywords: Lottery; marginal propensity to consume; marginal propensity to save; marginal propensity to earn; consumption; saving (search for similar items in EconPapers)
JEL-codes: D12 D15 E21 E62 H2 J22 (search for similar items in EconPapers)
Pages: 97
Date: 2026-10-01
New Economics Papers: this item is included in nep-lma
References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr1208.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr1208.html Summary (text/html)

Related works:
Working Paper: Consumption, Savings, and Earnings Responses to Financial Windfalls (2026)
Working Paper: Consumption, Savings, and Earnings Responses to Financial Windfalls (2026)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fednsr:103885

Ordering information: This working paper can be ordered from

DOI: 10.59576/sr.1208

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().