Alcohol Prohibition and Household Resource Reallocation: Evidence from Bihar, India

This study investigates how the implementation of alcohol prohibition in Bihar, India influenced household consumption behaviour. The ban led to increase in the household expenditure on nutritious protein rich food items like pulses; meat, eggs and fish (MEF) and productive avenues like education which enhances human capital formation. Using a high frequency panel dataset and by deploying a Difference-in-Differences (DID) strategy along with heterogeneity analysis, we are able to establish that the effects are stronger for regions and groups with a greater tendency to consume alcohol and thus a higher probability of inviting the enforcement of a more stringent ban. We use Synthetic Difference-in-Differences (SDID) along with parallel trends test to support our findings. Synthetic Difference-in- Differences (SDID) satisfies parallel trends by design, hence our results can be vested with causal inference. This beneficial impact of the state intervention provides insight on the possibility of conspicuous consumption of temptation goods with the potential of reforming subsidy transfers augmented by a new perspective on the debate between cash vs in-kind transfers. Thus our study has policy implications in devising better affirmative actions.