The unprecedented COVID-19 recession was successfully tackled by many counties by receiving unprecedented financial stimulus (e.g. Gaurinachas et al. 2021, Pappa and Vela 2022). However, this fiscal response has pushed governments to the brink of declining debt and deficits, and the ensuing energy crisis has added to the burden on revenue budgets. At the same time, green change was initiated and supporting the transition while consolidating the financial budget would be another impossible task for many European countries. This challenge has been a relevant issue in academic and policy debates. For example, Buti and Papakonstantino (2022) emphasize the need for funding for European public goods. Darvas and Wolff (2022) suggested a green gold rule to be financed by a green investment deficit that would not be calculated in the revenue rule. Garicano (2022) instead proposed a climate investment fund that would implement the Golden Rule but operate under a general monetary budget, encouraging countries to invest more in green change. Bénassy-Quéré (2022) takes a broad approach to sustainability, incorporating its financial, monetary, macroeconomic and environmental dimensions, and advises a more holistic approach than the Golden Rule, providing appropriate incentives at the national level.
In this column, we suggest a rather obsolete policy tool to address this challenge: creating a European lottery based on the design of the Spanish Christmas lottery. The first Christmas lottery was held in Cডিdiz in 1812, and it was set up by the government to raise money for Spanish soldiers fighting against Napoleon’s army. Lotteries were also used as a source of revenue to help finance colonies in colonial America (Milicon 2011). According to the National Conference of National Legislators, the total state revenue range from all state lotteries in the U.S. states is between 0.8% and 2%. So, although obsolete, this tool has been used several times in the past and present as a way to increase revenue. The Spanish Christmas lottery represents an important source of government revenue. The government revenue from this lottery scheme represents an average of about 0.1% of national GDP and an average of 0.3% of total government revenue in the 2005-2020 sample.
In a recent study (Ghomi et al. 2022), we collectively estimate the personal and overall impact of the Spanish Christmas lottery on macroeconomic aggregate and sentiment. Our study highlights the role of lotteries as a way to stimulate local demand and improve economic sentiment, in addition to their role as an effective tax collection device. Our results suggest that lotteries can kill two birds with one stone, increase voluntary tax revenue, and boost consumption and consumer confidence in winning territories.
As already mentioned, the Spanish Christmas lottery is special. First, it involves high prices. Each winner of the first prize, known as Thick (‘The Fatty’), gets around € 20,000 per euro game, and a standard ticket costs € 20. In addition, the winners of the second and third top prizes will receive € 6,250 and € 2,500 per Euro game, respectively. Second, and importantly for our test, the winners are geographically clustered, and the best prizes are awarded to the few thousand people who share the same ticket number. The winning provinces receive a shock equal to 0.2% of their GDP. For the provinces that receive the highest lottery prizes per capita, income shocks, on average, represent about 2.9% of provincial GDP. After all, for future policy design, since Christmas lottery ticket sharing is a social tradition, the participation rate in the lottery is extremely high.
Using local estimates, we examine the dynamic effects of the Spanish lottery’s earnings shock on labor market results and CPI prices using monthly Spanish province-level data. We see that lottery wins have significant and economically significant stimulus effects at the provincial level. On average, after a province wins the 1000 per capita lottery, the unemployment rate gradually declines, peaks one year later and remains significantly lower 20 months after the initial impact. In addition, the price level in the winning province continues to rise, reaching a maximum of 17 months after the collision and returning to its pre-shock value after about two years. When we examine the conditioning effects of lottery winning on the state of the economy, we show that the fall in unemployment after winning the lottery is even greater and lasts during the recession (when the unemployment rate is above 20%). On the other hand, we do not recognize a differential effect of lottery wins on CPI prices in the case of recession versus expansion. Figure 1 summarizes these results.
Figure 1 Effect of Christmas Lottery Rewards on Unemployment Rate and CPI
Comments: The left panel presents the responses in the linear projection model, while the right panel presents the responses in the state-dependent linear projection model, where the solid blue line responds to the high-idle state and the dotted red line responds to the low unemployment state.
We then collect personal-level data for perceptions and intended sustainable spending based on consumer confidence about current and future economic conditions and monthly surveys conducted by the Center for Sociological Research (CIS). Each month around 1,000-1,500 national representative families across Spain are asked about their past and intended consumption behavior and their current outlook and expectations about their own personal finances, as well as their economic status in Spain and their overall employment status in the country as a whole. Economic appearance. Following the University of Michigan survey, we created an overall index of confidence for the current (ICC) and expected macroeconomic conditions (ICE) and used local estimates to show that they responded positively and significantly to the impact of lottery wins (see Figure 2).
Figure 2 Impact of the Christmas Lottery Prize on the current economic indicators and consumer expectations index
Comments: The left panel responds to the linear projection model, while the right panel responds to the state-dependent linear projection model. The solid blue line is the reaction in the high-unemployment state and the dotted red line is the reaction in the low-unemployment state.
To further validate our conclusions about the emotional impact of lottery winning, we use binary choice and ordinal regression models to study the effects of lottery winning on personal feelings and enjoyment behavior. Winning the lottery significantly changes the attitude of consumers at the individual level. Families become temporarily more optimistic about their current and future incomes and employment, and tend to correct their expectations about the evolution of the Spanish economy if they live in a province that has won the lottery.
We show that the response to winning the lottery is different. Young, low-income, and low-educated families are more ‘sensitive’ to the arrival of the lottery in their province and they envision a brighter future for themselves and for the overall economic situation in Spain. Confirming the overall response, we also show that the economic feelings of the families living in the conquering provinces respond strongly during the recession.
Consistent with the results obtained in the existing literature (e.g. Kuhn et al. 2011, Atanasio et al. 2020), we further see that households in the conquering provinces have significantly increased their use of sustainable products – mainly furniture and vehicles – winning the lottery six months later. Positive emotions seem to trigger enjoyment responses: when we collectively examine personal confidence and spending intentions responses, we find that individuals who become more optimistic are more likely to significantly increase their sustainable cost responses after lottery shocks (also Gillitzer and See Prasad 2018). We argue that the process behind the promotion of lottery wins works through emotions: the feeling of winning the lottery enhances the feeling and the positive feeling encourages economic activity. We reject an alternative hypothesis in our paper.
However, one can expect the overall effect of the lottery to be negative. Since most people cannot win it, the lottery should act as a tax that reduces economic activity in the rest of Spain. According to popular view, Spaniards collectively play the lottery and view lottery expenses as part of Christmas spending and not as a tax. To formalize this argument, we examine whether the cost of the Christmas lottery differently affects the family’s response to sustainable spending when it comes to winning than in non-winning provinces. The data does not suggest any correlation between lottery expenses and household sustainable expenses. Furthermore, concerns about the regressive nature of the lottery as a tax on high participation rates for this lottery should be allayed.
Our results suggest that the lottery designed for Christmas by the Spanish State Lottery and the State Betting Society may be used as a new obsolete policy material. In practice, such a policy could voluntarily increase tax revenue and stimulate consumption and consumer confidence in the winning region. Further supporting our policy decision, Cabrales and Lugo (2016) argue that lotteries are more efficient than voluntary contributions to the financing of public goods, if lottery revenue goes to worthy causes that motivate lottery players’ ‘warm aura’ favorable preferences.
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