IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v85y2017icp132-145.html
   My bibliography  Save this article

The effect of payday lending restrictions on liquor sales

Author

Listed:
  • Cuffe, Harold E.
  • Gibbs, Christopher G.

Abstract

We exploit a change in lending laws to estimate the causal effect of restricting access to payday loans on liquor sales. Leveraging lender- and liquor store-level data, we find that the changes reduce sales, with the largest decreases at stores located nearest to payday lenders. By focusing on states with state-run liquor monopolies, we account for endogenous supply-side variables that are typically unobserved. Further analysis of consumer-level data indicates that the lending restrictions reduce alcohol expenditures without affecting total household spending. This is consistent with a distinct relationship between payday lending access and alcohol purchases, and suggests that present biased motivations underlie some loan use. The finding is significant because it shows that payday loan access is associated with unproductive borrowing, and directly links payday loan access to public health issues.

Suggested Citation

  • Cuffe, Harold E. & Gibbs, Christopher G., 2017. "The effect of payday lending restrictions on liquor sales," Journal of Banking & Finance, Elsevier, vol. 85(C), pages 132-145.
  • Handle: RePEc:eee:jbfina:v:85:y:2017:i:c:p:132-145
    DOI: 10.1016/j.jbankfin.2017.08.005
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426617301929
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Christopher S. Carpenter, 2005. "Heavy Alcohol Use and the Commission of Nuisance Crime: Evidence from Underage Drunk Driving Laws," American Economic Review, American Economic Association, vol. 95(2), pages 267-272, May.
    2. Brian T. Melzer, 2011. "The Real Costs of Credit Access: Evidence from the Payday Lending Market," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 517-555.
    3. Bhutta, Neil, 2014. "Payday loans and consumer financial health," Journal of Banking & Finance, Elsevier, vol. 47(C), pages 230-242.
    4. William N. Evans & Timothy J. Moore, 2012. "Liquidity, Economic Activity, and Mortality," The Review of Economics and Statistics, MIT Press, vol. 94(2), pages 400-418, May.
    5. Thomas S. Dee, 2001. "Alcohol abuse and economic conditions: Evidence from repeated cross-sections of individual-level data," Health Economics, John Wiley & Sons, Ltd., vol. 10(3), pages 257-270.
    6. Thomas S. Dee, 2001. "The Effects of Minimum Legal Drinking Ages on Teen Childbearing," Journal of Human Resources, University of Wisconsin Press, vol. 36(4), pages 823-838.
    7. Andersson, Elvira & Lundborg, Petter & Vikström, Johan, 2015. "Income receipt and mortality — Evidence from Swedish public sector employees," Journal of Public Economics, Elsevier, vol. 131(C), pages 21-32.
    8. David Laibson, 2001. "A Cue-Theory of Consumption," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 81-119.
    9. Campbell, Dennis & Asís Martínez-Jerez, F. & Tufano, Peter, 2012. "Bouncing out of the banking system: An empirical analysis of involuntary bank account closures," Journal of Banking & Finance, Elsevier, vol. 36(4), pages 1224-1235.
    10. Jonathan Zinman, 2014. "Consumer Credit: Too Much or Too Little (or Just Right)?," The Journal of Legal Studies, University of Chicago Press, vol. 43(S2), pages 209-237.
    11. Ciro Biderman & JoãoMP DeMello & Alexandre Schneider, 2010. "Dry Laws and Homicides: Evidence from the São Paulo Metropolitan Area," Economic Journal, Royal Economic Society, vol. 120(543), pages 157-182, March.
    12. Christopher Carpenter, 2007. "Heavy Alcohol Use and Crime: Evidence from Underage Drunk-Driving Laws," Journal of Law and Economics, University of Chicago Press, vol. 50, pages 539-557.
    13. Neil Bhutta & Paige Marta Skiba & Jeremy Tobacman, 2015. "Payday Loan Choices and Consequences," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(2-3), pages 223-260, March.
    14. Christopher Carpenter, 2004. "Heavy alcohol use and youth suicide: Evidence from tougher drunk driving laws," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 23(4), pages 831-842.
    15. Francesco Renna, 2007. "The economic cost of teen drinking: late graduation and lowered earnings," Health Economics, John Wiley & Sons, Ltd., vol. 16(4), pages 407-419.
    16. Fertig, Angela R. & Watson, Tara, 2009. "Minimum drinking age laws and infant health outcomes," Journal of Health Economics, Elsevier, vol. 28(3), pages 737-747, May.
    17. Dara Lee Luca & Emily Owens & Gunjan Sharma, 2015. "Can Alcohol Prohibition Reduce Violence against Women?," American Economic Review, American Economic Association, vol. 105(5), pages 625-629, May.
    18. Dobkin, Carlos & Puller, Steven L., 2007. "The effects of government transfers on monthly cycles in drug abuse, hospitalization and mortality," Journal of Public Economics, Elsevier, vol. 91(11-12), pages 2137-2157, December.
    19. Zinman, Jonathan, 2010. "Restricting consumer credit access: Household survey evidence on effects around the Oregon rate cap," Journal of Banking & Finance, Elsevier, vol. 34(3), pages 546-556, March.
    20. Ruhm, Christopher J. & Black, William E., 2002. "Does drinking really decrease in bad times?," Journal of Health Economics, Elsevier, vol. 21(4), pages 659-678, July.
    21. Chesson, Harrell & Harrison, Paul & Kassler, William J, 2000. "Sex Under the Influence: The Effect of Alcohol Policy on Sexually Transmitted Disease Rates in the United States," Journal of Law and Economics, University of Chicago Press, vol. 43(1), pages 215-238, April.
    22. Glen R. Waddell, 2012. "Gender And The Influence Of Peer Alcohol Consumption On Adolescent Sexual Activity," Economic Inquiry, Western Economic Association International, vol. 50(1), pages 248-263, January.
    23. Morse, Adair, 2011. "Payday lenders: Heroes or villains?," Journal of Financial Economics, Elsevier, vol. 102(1), pages 28-44, October.
    24. Dee, Thomas S., 1999. "State alcohol policies, teen drinking and traffic fatalities," Journal of Public Economics, Elsevier, vol. 72(2), pages 289-315, May.
    25. Donald P. Morgan & Michael R. Strain & Ihab Seblani, 2012. "How Payday Credit Access Affects Overdrafts and Other Outcomes," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44, pages 519-531, March.
    26. Tal Gross & Jeremy Tobacman, 2014. "Dangerous Liquidity and the Demand for Health Care: Evidence from the 2008 Stimulus Payments," Journal of Human Resources, University of Wisconsin Press, vol. 49(2), pages 424-445.
    27. Arna Vardardottir & Michaela Pagel, 2016. "The Liquid Hand-to-Mouth: Evidence from a Personal Finance Management Software," 2016 Meeting Papers 789, Society for Economic Dynamics.
    28. Carpenter, Christopher, 2005. "Youth alcohol use and risky sexual behavior: evidence from underage drunk driving laws," Journal of Health Economics, Elsevier, vol. 24(3), pages 613-628, May.
    29. Shawn A. Cole & John Thompson & Peter Tufano, 2008. "Where Does it Go? Spending by the Financially Constrained," Harvard Business School Working Papers 08-083, Harvard Business School, revised Apr 2008.
    30. Stephens Melvin, 2006. "Paycheque Receipt and the Timing of Consumption," Economic Journal, Royal Economic Society, vol. 116(513), pages 680-701, July.
    31. Christopher Carpenter & Carlos Dobkin, 2009. "The Effect of Alcohol Consumption on Mortality: Regression Discontinuity Evidence from the Minimum Drinking Age," American Economic Journal: Applied Economics, American Economic Association, vol. 1(1), pages 164-182, January.
    32. Michael A. Stegman, 2007. "Payday Lending," Journal of Economic Perspectives, American Economic Association, vol. 21(1), pages 169-190, Winter.
    33. Scott Carrell & Jonathan Zinman, 2014. "In Harm's Way? Payday Loan Access and Military Personnel Performance," Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2805-2840.
    34. Marianne Bertrand & Adair Morse, 2009. "What Do High-Interest Borrowers Do with Their Tax Rebate?," American Economic Review, American Economic Association, vol. 99(2), pages 418-423, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kabir Dasgupta & Brenden J. Mason, 2019. "The Effect of Interest Rate Caps on Bankruptcy: Synthetic Control Evidence from Recent Payday Lending Bans," Working Papers 2019-04, Auckland University of Technology, Department of Economics.

    More about this item

    Keywords

    Payday lending; Consumer credit; Alcohol;

    JEL classification:

    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H70 - Public Economics - - State and Local Government; Intergovernmental Relations - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • K23 - Law and Economics - - Regulation and Business Law - - - Regulated Industries and Administrative Law

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:85:y:2017:i:c:p:132-145. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/jbf .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.