Late Payments, Liquidity Constraints and the Mismatch between Due Dates and Paydays

35 Pages Posted: 8 Dec 2020

See all articles by Momi Dahan

Momi Dahan

Hebrew University of Jerusalem - School of Public Policy; CESifo (Center for Economic Studies and Ifo Institute)

Udi Nisan

Hebrew University of Jerusalem

Date Written: 2020

Abstract

This paper examines a small random liquidity shock to reveal the effect of liquidity constraints on late payment behavior. In Jerusalem, water bill due dates are randomly determined and therefore may occur just before or after social security paydays. We compared the likelihood of late payments by low-income households when they receive their social benefits a day after the water bill due date to the likelihood of late payment by the same households when they receive their benefits a day or more before the water bill due date. Using a large administrative data set, we found that a small random liquidity shock leads to a substantial increase in late payments of more than 10 percentage points among income support recipients and around 6 percentage points for old-age pension recipients with supplementary income. The mismatch between utility payment due dates and paydays may result in reduced psychological well-being, as well as interest charges and high late fees, contributing to the poverty penalty.

JEL Classification: I300, L950, D100

Suggested Citation

Dahan, Momi and Nisan, Udi, Late Payments, Liquidity Constraints and the Mismatch between Due Dates and Paydays (2020). Available at SSRN: https://ssrn.com/abstract=3744596 or http://dx.doi.org/10.2139/ssrn.3744596

Momi Dahan (Contact Author)

Hebrew University of Jerusalem - School of Public Policy ( email )

Mount Scopus
Jerusalem 91905
Israel
972-2-5883709 (Phone)
972-2-5880047 (Fax)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Udi Nisan

Hebrew University of Jerusalem ( email )

Mount Scopus
Jerusalem, Jerusalem 91905
Israel

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