Windfall gains and entrepreneurial activity: Evidence from the Spanish Christmas lottery

We estimate the effect of cash windfalls arising from the Spanish Christmas Lottery on entrepreneurship. This lottery provides a unique setting as prizes are geographically concentrated and distributed among thousands of households. We find that lottery prizes lead to higher firm creation, startup job creation, and self-employment. The entrepreneurial response is more pronounced in regions with poorer access to finance. Firms created in winning provinces are larger, more profitable, and more likely to survive longer. Incumbent firms in winning provinces do not benefit but increase wages, suggesting a local labor market tightening. Our results suggests that regional cash windfalls can have long-lasting effects on business activity.

Author: Vicente J. Bermejo, Miguel A. Ferreira, Daniel Wolfenzon, Rafael Zambrana
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Number of pages: 50
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