The effect of payday lending restrictions on liquor sales

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 lenders. By focusing on states with state-run liquor monopolies, we account for supply side variables that are typically unobserved. Our results are the first to quantify how credit constraints affect spending on liquor, and suggest mechanisms underlying some loan usage. These results illustrate that the benefits of lending restrictions extend beyond personal finance and may be large.