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A windfall gain is an unusually high or abundant income, net profit or profit margin, that is sudden, unexpected, or, at times, anticipated.^[1]

Types

Examples of windfall gains include, but are not limited to:

Unexpected inheritance or other large monetary gift from another
Sweepstakes winnings
Winning a lottery or success in another form of gambling
Returns on investments
Proceeds or profit from a large sale
Game show, or other contest winnings
Employment payroll bonus
Natural resources
Foreign aid
Proceeds from an insurance claim
Settlement from a lawsuit
Discoveries from treasure hunting

Uses

What people do with windfall gains is subject to much debate. While they differ from one account to the next, most economists hypothesize that the majority of the gains are saved, due to the Permanent Income Hypothesis.^[1]

Windfall profits

Windfall profits are a type of windfall gain. They can occur due to unforeseen circumstances in a product's market, such as unexpected demand or government regulation.^[2]

Taxation

Since windfall profits were unforeseen, some legislators believe that taxing them at a higher rate, or confiscating them outright, should not hurt the company. This type of taxation is known as a windfall profits tax.^[3]

References

^ ^a ^b "Windfall Gains". The Economist. January 1, 2007. Archived from the original on July 18, 2007. Retrieved 2007-03-09.
^ Twin, Alexandra (December 19, 2022). "Windfall Profits: What it is, How it Works, Examples". Investopedia. Retrieved 2024-08-28.
^ "Windfall Profit". The Economist. January 1, 2007. Archived from the original on July 18, 2007. Retrieved 2007-03-09.