Research Spotlight - Christina Kent and Alejandro Martinez

 

What happens when an entire town wins the lottery? Does the newfound wealth boost local economies through increased local investment and consumption? This underlying logic provides a rationale for fiscal stimulus measures and place-based policies to support struggling towns. However, wealth in times of plenty may also lead people to retire early and reduce their productivity.

We study this question using the largest lottery in the world, the Spanish Christmas Lottery. The Spanish lottery is unique among lotteries because instead of one grand prize winner, many people living in the same town win simultaneously. This leads to large, correlated wealth shocks to randomly selected towns each year. 

With funding from various organizations at Stanford, we traveled to Spain to collect data, survey lottery vendors, and interview mayors and citizens in winning towns. We collected data on lottery winnings and various economic indicators for towns across Spain, in addition to firsthand stories of the experiences Our funding also helped us digitize over 50 years of economic data for thousands of Spanish towns.

We found that the timing of the lottery win was important in determining its effect. For towns that won in recent decades, when the Spanish economy was doing relatively well, consumption of cars and housing increases while employment, business growth, and migration to the town all decrease. However, an analysis of a century of lottery winners reveals significant and persistent increases in population for towns that won in the long recession after the Spanish Civil War. Our results suggest a limited role of direct wealth transfers in promoting economic growth outside of large recessions.

Our work has benefitted significantly from our collaboration across fields. Christina's fields are public and labor economics with a strong applied microeconomics focus. Alejandro studies behavioral economics and economic history and began with a more theoretical focus. Alejandro's historical and behavioral background helped us understand the history of the lottery and the psychology of lottery players, while Christina's expertise in applied micro methods helped us identify the lottery's effects. Our collaboration was key to the success of this project.