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Testing the Permanent Income Hypothesis using the Spanish Christmas Lottery

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  • Guillermo Cabanillas-Jiménez

Abstract

The Spanish Christmas Lottery is one of the most common lottery games played in Spain. This paper analyses how local windfall gains from the Christmas Lottery can affect household consumption behavior. We find that there is a significant increase in goods consumption in the winning Regions. More precisely, we find that durable goods are sensitive to lottery winnings, meaning that those households living in the winning Regions of the lottery spend more on this type of goods. Non-durable goods do not seem to react to the income shock, as the estimated effect is inelastic, although the effect is statistically significant. Despite these findings are in line with the theoretical predictions, these results imply a violation of the Permanent Income Hypothesis for long-life goods, as households do not smooth their consumption when a onetime and positive income shock occurs.

Suggested Citation

  • Guillermo Cabanillas-Jiménez, 2021. "Testing the Permanent Income Hypothesis using the Spanish Christmas Lottery," Studies in Economics 2104, School of Economics, University of Kent.
    • Handle: RePEc:ukc:ukcedp:2104
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    More about this item

    Keywords

    Consumption; Durable goods; Non-durable goods; Lottery; PIH; Winning Region;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C26 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Instrumental Variables (IV) Estimation
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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