Financial Regulation and Household Portfolio Reallocation: The Impact of the 1905 Dutch Lottery Ban

Abstract

How do individuals adjust their investment portfolios when gambling is restricted? Using a hand-collected Dutch inheritance tax records dataset, we examine portfolio reallocations following the 1905 law, which exempted lottery bonds. After the ban, we show that lowerwealth individuals significantly increased allocations to lottery bonds, which is consistent with the main predictions of aspirational utility theory. The substitution effect was weaker among the poorest individuals, implying a strong non-linear wealth-return tradeoff. Older individuals reallocated relatively more, likely reflecting entrenched gambling preferences. Together, these findings highlight the dynamic behavioral response to a policy change.

Keywords: Lottery bonds, Government intervention, Household finance, Wealth inequality, Savings behavior, Lottery ban, Financial regulation