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How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income

Mikhail Golosov National Bureau of Economic Research

Date Posted:: July 8, 2021
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A dollar of unearned income reduces pre-tax earnings by ~50 cents; a UBI of $12,000 a year would reduce average household earnings by more than $6,000.

The introduction of a UBI [Universal Basic Income] of $12,000 annually would significantly impact household earnings, reducing them by over $6,000 on average. This is due to the finding that each additional dollar of unearned income typically decreases pre-tax labor earnings by about 50 cents. The reduction in earnings also leads to a decrease in labor taxes by 10 cents and an increase in consumption by 60 cents per dollar of unearned income. These effects vary across income distributions, with higher-income households reducing their earnings more substantially. The policy implications suggest that financing a UBI would require an earnings surcharge of approximately 27%, with 2.5 percentage points attributed to behavioral responses. The study highlights the broader economic impacts, including changes in labor market participation and consumption patterns, underscoring the complex trade-offs involved in implementing such income redistribution policies.

Takeaways by Macro Roundup^® AI

Each additional dollar of unearned income reduces pre-tax labor earnings by about 50 cents, lowers labor taxes by 10 cents, and raises consumption by 60 cents, according to the study.
A $12,000 annual UBI would reduce average household earnings by over $6,000, with higher-income households cutting their earnings more substantially.
Financing a $12,000 UBI would require an earnings surcharge of roughly 27%, of which 2.5 percentage points is attributed to behavioral responses.

Mikhail Golosov, Michael Graber, Magne Mogstad and David Novgorodsky, "How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income," National Bureau Of Economic Research, July 2021, https://www.nber.org/papers/w29000

How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income: Extended Excerpt Image 1

Implications for taxes:"... In Figure 5.2, we use these formulas to plot ∂τY and ∂τR, where everything is normalized per 1 percentage point increase in top marginal tax rates.27 To highlight the contribution of the income effect, we also plot the earnings and revenue responses if we set MPEint = 0. If the uncompensated elasticity takes values in the interval, a 1 percentage point increase in top tax rates increases revenues between 0.1 and 0.6 percent, and reduces earnings between 0.04 and 0.34 percent, with income effects contributing about 0.1 and 0.04 percentage points to these responses, respectively…”

New NBER on the implied first order impact of a universal basic income on household earnings using evidence from lottery winners, “…we use variation in the timing of lottery wins as an instrument for yearly unearned income. On average, an extra dollar of unearned income in a given period reduces pre-tax labor earnings by about 50 cents, decreases total labor taxes by 10 cents, and increases consumption by 60 cents….UBI of $12,000 a year24 would reduce average household earnings by more than $6,000, and require an earnings surcharge of approximately 27 percent on all households, out of which 2.5 percentage points is due to the behavioral response. …Interestingly, the MPEs and MPCs vary systematically across the pre-win income distribution. For example, individuals in the bottom quartile of the pre-win income distribution use most of the increase in unearned income on consumption, while individuals in the top quartile prioritize reducing labor over increasing consumption…”

Core findings, ".... Our first contribution was to estimate the earnings responses to these windfall gains, finding significant and sizable wealth and income effects. On average, an extra dollar of unearned income in a given period reduces pre-tax labor earnings by about 50 cents, decreases total labor taxes by 10 cents, and increases consumption by 60 cents. These effects are heterogeneous across the income distribution, with households in higher quartiles of the income distribution reducing their earnings by a larger amount. Our second contribution was to develop and apply a rich life-cycle model in which heterogeneous households face non-linear taxes and make earnings choices along both intensive and extensive margins. By mapping this model to our estimated earnings responses, we obtained informative bounds on the impacts of two policy reforms: an introduction of UBI and an increase in top marginal tax rates. Our last contribution was to study how additional wealth and unearned income affect a wide range of behavior, including geographic mobility and neighborhood choice, retirement decisions and labor market exit, family formation and dissolution, entry into entrepreneurship, and job-to-job mobility. In our analyses, we described the key identification and measurement challenges that arise, motivated how lottery winnings as a source of variation in wealth or unearned income can address these challenges, and discussed how our findings relate and contribute to existing work... Our bounds demonstrate that the introduction of a UBI will have a large effect on earnings and tax rates. For example, even if one abstracts from any disincentive effects from higher taxes that are needed to finance this transfer program, each dollar of UBI will reduce total earnings by at least 52 cents. With the relatively modest disincentive effects of a Marshallian earnings elasticity of 0.3, a UBI crowds out earnings essentially one for one. By comparison, income effects have less pronounced implications for the earnings reduction from increasing the top marginal tax rates…”

The Evidence: “Figure 3.3 shows that various measures of labor market outcomes fall significantly for lottery winners (relative to later winners) after they win a lottery.Since our observations are at an annual frequency, it is difficult to interpret estimates in event time 0 since they are affected by the timing of the win within the year. For this reason we focus our discussion on years 1 through 5. The wage earnings of the winner fall on average by $3,572 (approximately 10 percent) in the first year following the lottery win, and continue to decline slightly in subsequent years. Per-adult wage earnings have a similar pattern to winner wage earnings, but they decline by slightly less: $3,234 (approximately 10 percent) in the first year after the win. Recall that per-adult wage earnings for married households is the average wage earnings of the winner and the spouse. The smaller decrease in per-adult wage earnings compared to winner wage earnings implies that the spouse of the winner decreases his or her wage earnings by a smaller amount. It is also evident that the winner is more likely to stop working, and this probability grows over time. This pattern also persists after accounting for spousal responses…We find that wealth effects for both earnings and employment decrease with prize size. For smaller winners, the average per-adult total earnings reduction per 100 dollars of additional wealth is in excess o 5.5 dollars, whereas for the largest winners, the reduction is less than 1 dollar per 100 dollars of additional wealth. This pattern of decreasing effects by prize size raises a natural question: How much of the crossprize difference in wage earnings responses is attributable to the extensive labor supply margin? To address this question, we decompose the difference in per-dollar earnings effects between smaller and larger prize winners into extensive- and intensive-margin contributions (see Appendix D). In particular, we focus our decomposition on the difference between the smaller ($30,000 to $300,000) prize bin and the largest ($1 million and up). We summarize the results of this decomposition of differences in Table 3.4. We find that the extensive margin explains a substantial fraction of the differences in per-dollar responses across prize size. For example, in aggregate, we find that for per-adult total labor earnings approximately half of the difference in wealth effects across prize size is attributable to differences along the extensive-margin response. The share of cross-prize-size differences attributable to the extensive margin declines as we look across the income distribution, falling from approximately 75% for lower-income (first quartile) winners to approximately 44% for higher-income (fourth quartile) winners…”

How Americans Respond to Idiosyncratic and Exogenous Changes in Household Wealth and Unearned Income: Extended Excerpt Image 3

“...Main estimates and heterogeneity across the income distribution. Table 4.1 presents the results both for the full sample and separately for each income quartile,similarly to Table 3.2. The estimates here are reported using the annuitization method; point estimates are very similar when we use the capitalization method and so we relegate them to the appendix (see Appendix Table A.3). Table 4.1 shows that labor earnings responses to a change in unearned income (i.e., MPEs) are quite large. An extra dollar in unearned income leads to a 52 cent reduction in labor earnings. Furthermore, there is substantial heterogeneity in MPEs across the income distribution. The MPE of households in the lowest quartile is -0.31 while the MPE of those in the highest quartile is -0.67. The imputed consumption responses are of similar magnitude to earnings responses, and also display heterogeneity across the income distribution. Imputed consumption increases, on average, by 58 cents in response to an extra dollar in unearned income. This response is largest for households in the lowest pre-win income quartile and it declines with pre-win income. Finally, the reduction in earnings leads to a reduction in labor earnings taxes of about 11 cents per extra dollar of unearned income.... Figure 4.2 illustrates how an extra dollar in unearned income translates into changes in earnings and consumption for younger and older winners. The similarity of the effects between these two groups provides an additional piece of support for the annuitization method beyond our earlier comparison with the capitalization approach shown in Figure 4.1..."

Ed Comment:Apropos to the min wage debate, a significant portion of the increase in the min wage might lost to less work. Ben thinks that’s a good thing. I think we predominantly serve humankind by serving them as customers.

The Fairest Way to Reform Social Security May Also Be the Worst Way to Grow the Economy

Andrew Biggs American Enterprise Institute

Date Posted:: May 28, 2026
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Biggs argues that “fair” approaches to restoring Social Security solvency – those that do not cut already accrued benefits – are less effective than “unfair” ones that do, because the latter incentivize increased work effort, raising growth and revenue.

Imagine that Social Security reform follows the fairness model, in which accrued benefits are paid in full but the rate at which future benefits are earned is reduced. A simple way to do this is to increase the payroll tax rate To keep Social Security permanently solvent, meaning through 75 years and beyond, would require an immediate and permanent increase in the payroll tax rate [from] 12.4% to 17.6%. The higher rate would decrease labor supply and reduce economic growth. [Consider] an alternate reform, which looks clearly unfair: fix Social Security’s funding gap entirely by reducing accrued benefits that Americans already have earned. As of 2025, Americans had accrued $54 trillion in Social Security benefits. Social Security’s unfunded obligation as of 2025 was $26 trillion. So, roughly, this means cutting Americans’ “earned benefits” in half. [Analyzing the 1977 reform that undid the notorious 1972 “double-indexing” of benefits, a group of economists], using SSA earnings data, found that, for every dollar of lost benefits, the affected Americans increased their earnings by 61 cents. Moreover, these additional earnings would be taxed by Social Security, further strengthening the program’s finances. In effect, this makes cutting benefits a “cheaper” way to fix Social Security than raising taxes, because people respond in ways that also increase tax revenues.

Takeaways by Macro Roundup^® AI

Keeping Social Security permanently solvent under the "fairness" model of paying accrued benefits in full would require an immediate and permanent payroll tax increase from 12.4% to 17.6%, which would decrease labor supply and reduce economic growth.
Americans had accrued $54 trillion in Social Security benefits as of 2025 against an unfunded obligation of $26 trillion, so closing the gap solely by cutting already-earned benefits would mean roughly halving those benefits.
Economists analyzing the 1977 reform that undid the 1972 "double-indexing" of benefits found, using SSA earnings data, that affected Americans raised their earnings by 61 cents per dollar of lost benefits, earnings that Social Security would tax.

The World’s Most Surprising Capitalist Makeover Is Under Way in Sweden

Tom Fairless Wall Street Journal

Date Posted:: May 12, 2026
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Swedish public social spending is now 23.7% of GDP, just 1pp above that of the US and well under France’s 31.6%. Market-based reforms in the 1990s brought overall government spending down from 69.4% to 49.3% in 2024.

For decades, Sweden was shorthand for the brand of high-tax, high-spend government that managed people’s lives from cradle to grave through state-run hospitals, schools and care homes. No longer. With little fanfare, this Nordic country of 11 million has embraced capitalism. Today, nearly half of primary healthcare clinics are privately owned, many by private-equity firms. One in three public high schools is privately run, up from 20% in 2011. School operators are listed on the stock exchange. The capitalist makeover has allowed Sweden to do what few industrialized countries have managed in recent years: shrink the size of the state. That has enabled the government to sharply lower taxes and, economists say, sparked a surge in entrepreneurship and economic growth. Its total public social spending bill—which includes healthcare, education and all welfare payments—has fallen to 24% of gross domestic product, similar to the U.S. and well below the over 30% for nations like France and Italy. Sweden’s economy is expected to grow by around 2% a year through 2030, roughly the same pace as the U.S. and double the growth rates of France and Germany, according to an April forecast by the International Monetary Fund.

Takeaways by Macro Roundup^® AI

Sweden's total public social spending, covering healthcare, education and welfare payments, has fallen to 24% of GDP, similar to the U.S. and well below the over 30% of nations like France and Italy.
Nearly half of Sweden's primary healthcare clinics are privately owned, many by private-equity firms, and one in three public high schools is privately run, up from 20% in 2011, with school operators listed on the stock exchange.
An April forecast by the International Monetary Fund projects Sweden's economy will grow around 2% a year through 2030, roughly matching the U.S. and double the growth rates of France and Germany.

How Policy and Demographics Are Reshaping SNAP: From Families with Children to Older Adults

Angela Rachidi American Enterprise Institute

Date Posted:: May 1, 2026
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About 40mm Americans, 12% of the population, receive SNAP benefits, up from 6% in 2000. In 2023, only 34% of these households included children, down from 49% in 2010, while 36% contained an elderly person, up from 16% in FY2010.

Comparing FY2000 with FY2025, the share of the population receiving SNAP doubled from 6% to 12%, while real SNAP costs per capita increased by 179%—from roughly $100 per year to $279 (in 2024 dollars). Despite this growth, per capita participation and costs in FY2025 remained below their pre-pandemic peak in 2013, which coincided with the aftermath of the Great Recession and changes in eligibility and other policies stemming from the 2008 Farm Bill. SNAP is countercyclical, meaning that all else equal, the number of people receiving SNAP should rise during recessions because of increased unemployment and decline as the economy recovers, [though] overall SNAP participation has grown faster than changes in the unemployment rate alone would predict. Over the long run, and especially since FY2020 (due to the Thrifty Food Plan’s increase in the maximum SNAP benefit), costs per capita have not returned to prerecession levels after a period of high unemployment. In FY2023, the share of SNAP households containing an elderly person (36%) exceeded the share containing a child (34%) for the first time. This was a sharp departure from the early 2000s, when more than half of SNAP households contained a child and less than 20% included an elderly person (Figure 2).

Takeaways by Macro Roundup^® AI

The share of the U.S. population receiving SNAP doubled from 6% in FY2000 to 12% in FY2025, while real SNAP costs per capita rose 179%, from roughly $100 to $279 per year in 2024 dollars.
In FY2023, the share of SNAP households containing an elderly person reached 36%, exceeding the 34% containing a child for the first time, against the early 2000s when over half contained a child and under 20% included an elderly person.

Washington’s Growing Portfolio: Tracking U.S. Government Investments

Jonathan Hillman Council On Foreign Relations

Date Posted:: April 23, 2026
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Since January 2025, the USG has taken equity stakes totaling $20.9B in 16 American businesses. $8.6B, ~41% of the total, was invested in critical mineral miners and processors, while $8.9B, ~43% of the total, funded the government’s 10% stake in Intel.

Since January 2025, the U.S. government has invested $20.9 billion across sixteen deals involving direct ownership, broadening a toolkit that has traditionally focused on grants, loans, and tax incentives. The Department of Commerce has participated in six such deals, including taking a 10% stake in Intel. The Development Finance Corporation, the United States’ development bank, has executed three equity transactions in critical minerals, healthcare, and infrastructure. The Department of Defense leads the way with seven such deals. The U.S. government is also working with a range of partners and has mobilized an additional $4.75 billion in investment. Private co-investors include J.P. Morgan, Goldman Sachs, and others.

Takeaways by Macro Roundup^® AI

Since January 2025, the U.S. government has invested $20.9 billion across sixteen deals involving direct ownership, broadening a toolkit traditionally focused on grants, loans, and tax incentives.
The Department of Defense leads with seven direct-ownership deals, followed by the Department of Commerce with six, including a 10% stake in Intel, while the Development Finance Corporation has executed three equity transactions in critical minerals, healthcare, and infrastructure.
The U.S. government has mobilized an additional $4.75 billion in investment alongside private co-investors including J.P. Morgan and Goldman Sachs.

How Federal Spending is Distributed by Age

Kent Smetters University of Pennsylvania

Date Posted:: April 2, 2026
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In 2025, of the 62.5% of Federal spending that is age-assignable on a per-capita basis, US retirees aged 65+ were given $43,700, working-age adults 26–64 got $7,300, and children and young adults got $4,300.

We trace spending items within 52 general spending categories, totalling $7T for the 2025 Fiscal Year. We are able to classify a total of $4.4T across three broad age categories and assign the remaining $2.6T to an all-ages residual. Retirees (adults age 65 and older) receive $2.7T, equal to 38.6% of total federal outlays and 61.9% of age-assignable spending. Working-age adults (ages 26-64) receive $1.2T (27.9% of age-assignable), and children and young adults (under age 26) receive $449B (10.3%). The dominance of the retiree category reflects two programs above all others: Social Security and Medicare. Social Security directs $1.3T to retirees, and Medicare sends $835B. Together, they account for 80% of all age-assignable spending on older adults. But the retiree total extends beyond these two entitlements. Federal employee retirement benefits ($169B), housing assistance for older households, Medicaid long-term-care spending, and VA medical care all contribute, making the federal budget more retiree-focused than a Social Security–only lens would suggest.

Takeaways by Macro Roundup^® AI

Retirees aged 65 and older receive $2.7 trillion of federal spending in fiscal 2025, equal to 38.6% of total outlays and 61.9% of age-assignable spending, versus $1.2 trillion for working-age adults aged 26–64.
Children and young adults under age 26 receive $449 billion, or 10.3% of age-assignable federal spending, out of $4.4 trillion classified by age within a $7 trillion budget, with $2.6 trillion assigned to an all-ages residual.
Social Security directs $1.3 trillion and Medicare $835 billion to retirees, together 80% of age-assignable spending on older adults, with federal employee retirement benefits ($169 billion), housing assistance, Medicaid long-term care, and VA medical care contributing further.

Has the United States Bent the Health Care Cost Curve?

David Cutler and Lev Klarnet Brookings Papers On Economic Activity

Date Posted:: March 30, 2026
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In 2024, medical spending as a share of GDP was just above its 2010 level and 15% ($977B) below its 2010 forecast; 21% of the gap was due to technology, 24% to price reductions, and 11–27% to reforms such as prior authorization and higher deductibles.

Five factors are important in the slowdown in spending [Figure 16]. The first is technology-associated changes in health and site of care. These correspond to the subsequent innovations in our model. Together, technologies along these lines account for 21% of the overall cost slowdown and double that in Medicare. Second, long-run supply is more elastic than short-run supply, which lowers spending over time. This is particularly apparent in the impact of patent expiration for pharmaceuticals and in relative declines in imaging reimbursement. We estimate that greater long-run supply explains 6% of the spending slowdown. Third, a variety of market changes contribute to reduced and more elastic demand, including increased cost sharing paid by consumers, physicians not paid as much for using technologies, and insurers imposing restrictions on technology use - a rough guess is that these account for 11 to 27% of the spending slowdown. Fourth, the population is healthier in ways that reduce spending. This includes fewer hospitalizations for smoking-related conditions and reduced need for formal home health care. The birth rate has fallen as well, which reduces the need for care. We estimate improved population health explains 7% of the spending slowdown. A major component is slower price growth. Net of upcoding, we estimate lower price growth explains 24% of the spending slowdown.

Takeaways by Macro Roundup^® AI

Technology-associated changes in health and site of care account for 21% of the overall U.S. health care cost slowdown and double that share in Medicare, according to the authors' estimates.
The authors estimate that slower price growth, net of upcoding, explains 24% of the health care spending slowdown, while market changes reducing demand — higher consumer cost sharing, lower physician payment for technology use, and insurer restrictions — account for a rough 11–27%.
Improved population health explains an estimated 7% of the spending slowdown, through fewer smoking-related hospitalizations, reduced need for formal home health care, and a lower birth rate, while greater long-run supply elasticity explains 6%.

A dollar of unearned income reduces pre-tax earnings by ~50 cents; a UBI of $12,000 a year would reduce average household earnings by more than $6,000.

How much do households cut earnings when given unearned income?

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Biggs argues that “fair” approaches to restoring Social Security solvency – those that do not cut already accrued benefits – are less effective than “unfair” ones that do, because the latter incentivize increased work effort, raising growth and revenue.

Does closing Social Security's gap with higher payroll taxes hurt growth?

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Swedish public social spending is now 23.7% of GDP, just 1pp above that of the US and well under France’s 31.6%. Market-based reforms in the 1990s brought overall government spending down from 69.4% to 49.3% in 2024.

How has Sweden shrunk its state by privatizing public services?

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About 40mm Americans, 12% of the population, receive SNAP benefits, up from 6% in 2000. In 2023, only 34% of these households included children, down from 49% in 2010, while 36% contained an elderly person, up from 16% in FY2010.

How have food stamp enrollment, costs, and recipient households changed?

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Since January 2025, the USG has taken equity stakes totaling $20.9B in 16 American businesses. $8.6B, ~41% of the total, was invested in critical mineral miners and processors, while $8.9B, ~43% of the total, funded the government’s 10% stake in Intel.

Is the U.S. government taking direct equity stakes in companies?

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In 2025, of the 62.5% of Federal spending that is age-assignable on a per-capita basis, US retirees aged 65+ were given $43,700, working-age adults 26–64 got $7,300, and children and young adults got $4,300.

How is federal spending distributed across age groups?

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In 2024, medical spending as a share of GDP was just above its 2010 level and 15% ($977B) below its 2010 forecast; 21% of the gap was due to technology, 24% to price reductions, and 11–27% to reforms such as prior authorization and higher deductibles.

What explains the slowdown in US health care spending?

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