Impulsive Consumption and Financial Wellbeing: Evidence from an Increase in the Availability of Alcohol
72 Pages Posted: 22 Mar 2017
Date Written: March 2017
Increased availability of alcohol may harm individuals if they have present-focused preferences and consume more than initially planned. Using a nationwide experiment in Sweden, we study the credit behavior of low-income households around the expansion of liquor stores' operating hours on Saturdays. Consistent with store closures serving as commitment devices, the policy led to higher credit demand, more default, increased dependence on welfare, and higher crime on Saturdays. The effects are concentrated among the young population due to higher alcohol consumption combined with tight liquidity constraints. The policy's impact on indebtedness is estimated at 4.5 times the expenditure on alcohol.
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