Expenditures, Savings and Temptation Under Prohibition Evidence From Bihar

Abstract

Since April 2016, alcohol is forbidden in the Indian state of Bihar. This paper studies the impact of prohibition on household expenses and savings using a difference-in-difference design and exploiting pre-ban variations in household alcohol expenditures. The resulting estimates suggest that the ban reduced alcohol expenditures, decreased spending on temptation goods and increased expenditures on nutrition and education. Richer households decreased their total expenditures on consumable goods and services, alcohol and temptation food significantly more than poorer ones. The positive effects on education expenses are larger among poorer households. My estimates also suggest that prohibition led to a modest increase in the likelihood of saving in gold, but I find no evidence of such effect for other financial instruments.