Impulsive Consumption and Financial Wellbeing: Evidence from an Expansion in the Supply of Alcohol

Category: Finance Seminar
When: 15 November 2016
, 16:15
 - 17:30
Where: House of Finance, E01 Deutsche Bank

Increasing the supply of temptation goods might harm individuals if they have time-inconsistent
preferences and consume more of these goods in the present at the expense of their future consumption
plan. We test this hypothesis by studying the credit behavior of low-income Swedish households around
the expansion of the opening hours of retail liquor stores in some counties. Consistent with the theory,
the expansion in opening hours led to an increase in the take-up rate and balances of consumer credit
(mainstream and pawn credit). Furthermore, default rate increased in treated populations. Thus, our
results show that inconsistent-time preferences reinforce the conditions of poverty through borrowing
and default.