More Money, More Options? The Effect of Cash Windfalls on Entrepreneurial Activities in Small Businesses
63 Pages Posted: 16 Dec 2018 Last revised: 12 Feb 2021
Date Written: February 11, 2021
Using a unique setting that exploits the bonuses that retailers earn when selling jackpot winning lottery tickets, we show that large windfalls not only increase revenue and employment but also spur business creation. The new businesses are mainly in nonretail industries and are associated with the closing of existing businesses. There is a pecking order in entrepreneurs' growth decisions: small windfalls increase revenue, whereas windfalls larger than $100,000 trigger business creation and employment. That the probability of creating new businesses increases after constraints cease to bind suggests that wealth effects play an important role in explaining our results.
Keywords: cash windfall, cash transfers, small businesses, entrepreneurship, Mega Millions, Powerball, lottery
JEL Classification: G32, L26, M13
Suggested Citation: Suggested Citation