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The effect of payday lending restrictions on liquor sales

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  • 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
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    More about this item

    Keywords

    Payday lending; Consumer credit; Alcohol;
    All these keywords.

    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

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