The effect of wealth on behavior is of substantial interest to policymakers. For example, many important public policies -- such as changes to retirement systems, property taxes, or lump-sum components of welfare payments -- often involve transfers of wealth. Moreover, the costs and benefits to income redistribution depend on exactly how people respond to changes in their wealth. Therefore, understanding how (and by how much) people respond to changes in wealth is important for predicting and evaluating a wide range of public policies.
Despite a rich literature studying the effects of wealth on a large number of economic and non-economic outcomes, there remains little consensus on the importance and magnitude of wealth effects in a wide variety of settings. This lack of consensus is likely a result of the substantial practical challenges associated with credibly estimating wealth effects. This research tries to improve our understanding of the causal effects of wealth on a wide range of behaviors and outcomes by studying three large populations of Swedish lottery players. Because prizes are assigned at random, this makes it relatively straightforward to produce credible estimates using the well-accepted and uncontroversial framework of a randomized controlled design.
The projects described in this research outline are all based on the analysis of three recently collected samples of Swedish lottery players, comprising more than three million individuals. With the help of Statistics Sweden, the players have been matched to population-based administrative records containing annual information about employment, earnings, health, and a number of other variables (with most of the variables available annually beginning in the late 1970s). Besides information on the lottery players themselves, the data also contains information on the players' spouses, partners, and children. Overall, the combined data set has several unique advantages. First, there are minimal biases due to attrition or non-response since the players have been matched to population-wide administrative data. Second, because of the large sample size, the data can be used to investigate differences across many different demographic groups. Lastly, there is significant variation in the amount of prizes awarded, which means that it is possible to estimate non-linear effects of the prizes. In total, the data contain 13,000 individuals who were randomly assigned more than the average annual income in Sweden and another 1,500 who were randomly assigned more than ten times the average annual income.
The assembled data will be used for three separate research projects. The first project examines how wealth shocks impact labor earnings, spousal labor supply, retirement behavior, social insurance take-up, and occupational switching. These outcomes span a wide range of interesting labor market effects that one might expect to observe in response to unexpected increases in wealth. The information on spousal earnings will enable separate estimates of wealth effects by individual and by household, which may also shed light on economic models of decision-making within the household. The second project explores how wealth impacts a rich set of proxies for health, such as cause of death, drug prescriptions, and hospitalizations. The findings from this project will hopefully provide an important step toward resolving a long-running debate in social science about the extent to which the strong socioeconomic gradient in health reflects the causal effect of wealth on health.
The third project explores the effect of wealth on political participation (such as voter turnout and nomination for political office) as well as political attitudes. This project is highly interdisciplinary in nature and should be of considerable interest to both political scientists and economists. While existing research in political science and economics has documented a strong correlation between socioeconomic status and political participation, the interpretation of these results remains controversial. The rich data and credible research design in this project will hopefully result in uncontroversial estimates of the effect of wealth on a number of different measures of political participation and political attitudes.
