Timing matters: exploring the causal effect and potential mechanisms of a liquidity shock on delayed payments

Late payment and arrears management are chronic issues in many markets, especially in public services, significantly affecting household welfare and firms' profitability. In Tucumán Province, Argentina, about 62% of electricity consumers pay their bills late, rising to 85% among low-income households. Previous research indicates that liquidity constraints and financial management challenges may be significant contributing factors. Using data from over 20,000 households receiving social security benefits between 2019 and 2022, we examine how mismatches between electricity bill due dates and social security paydays affect on-time payments. Our findings show that the likelihood of on-time payment drops by 4.5 percentage points when the payday falls just after the due date and by 3 percentage points when it falls after the disconnection date. Additionally, we find no significant effects on households using credit, likely because they do not experience a liquidity shock due to the timing mismatch. To the best of our knowledge, this is the first study to examine the impact of liquidity shocks on energy utility disconnection and the underlying mechanisms, thereby extending the literature on the poverty penalty.