Estimating the Effect of Income on Health and Mortality Using Lottery Prizes as an Exogenous Source of Variation in Income

Abstract

A vast literature has established a strong positive relation between income and health status and a negative relation with mortality. This paper studies the effects of income on health and mortality, using only the part of income variation due to a truly exogenous factor: monetary lottery prizes of individuals. The findings are that higher income causally generates good health and that this effect is of a similar magnitude as when traditional estimation techniques are used. A 10-percent income increase improves health by about 4-5 percent of a standard deviation.