Consumption Responses to Income Shocks through Lottery Winning: Evidence from Older Adults in Singapore

Abstract

We study the effects of lottery winning on consumption spending using household survey data of older individuals aged 50-70 years in Singapore. We find strong consumption responses to a transitory income shock from lottery wins, and lottery winners spend about half of their prizes within 12 months of winning. We show that consumption responses are stronger among households with more binding liquidity constraints. The strong consumption response suggests that fiscal stimulus policies or other public transfer programmes could effectively boost consumption spending in the short run.