Do Cash Windfalls Affect Entrepreneurship? Evidence from the Spanish Christmas Lottery

Abstract

We show that regional cash windfalls have long-lasting effects on the real economy by spurring entrepreneurship. We identify the effects using the Spanish Christmas Lottery, which provides a unique setting as prizes are large, geographically concentrated, and distributed among thousands of households. We find that lottery prizes lead to higher firm creation, startup job creation, and self-employment. Firms created in winning provinces are larger, more profitable, and more likely to survive longer. We also find evidence of general equilibrium effects operating thorough labor markets underscoring the need for studying large regional shocks to measure the overall impact of cash windfalls.

Keywords: Entrepreneurship, Firm Creation, Job Creation, Cash Windfall, Economic Conditions, Disposable Income, Aggregate Effects, Financial Constraints

JEL Classification: D14, G30, L26