Poverty and economic behavior: gambling on social security paydays

ABSTRACT

The goal of this research is to explore whether actual lottery revenues are sensitive to economic scarcity, as measured by intra-monthly stock of financial resources. Paydays of social security benefits are employed in this study to generate the various degrees of intra-monthly scarcity in financial resources. Using two million observations on daily lottery revenues that cover more than 2,500 lottery outlets in Israel over two years (2015–2016), the empirical analysis suggests that gambling revenue spikes at social security paydays. The estimation results imply that on income support payday aggregate lottery revenues are higher by 5% after taking into account potential determinants of gambling such as day of week, holidays and outlet characteristics. However, the calculated aggregate reaction of lottery revenues on income support payday is quite small and equals 0.5% of the total monthly payments deposited into the bank accounts of income support recipients. In addition, the other social security and salary paydays induce a trivial impact, relative to total monthly payments deposited into the bank accounts of the respective recipients. The findings presented here provide a valuable contribution to gambling studies that examine the relationship between economic conditions and lottery.

KEYWORDS:

• Scarcity
• liquidity constraints
• poverty
• social security payday
• gambling

Acknowledgments

I thank Liram Aharoni, Shira Gross and Dor Leventer for their research assistance and Bracha Gavra, Zion Mizrahi, Eti Sirzli and Orna Varkovitzki for helping with recovering social security actual paydays. This paper was presented at the School of Public Policy at the Hebrew University of Jerusalem. I am grateful for the helpful comments I have got from Claude Berrebi, Raanan Sulizeano-Kenan, Eyal Peer, Moses Shayo and Liat Raz-Yurovitz. I would also like two anonymous referees for their insightful comments.

Constraints on publishing

I declare that I have no constraints on publishing this research.

Competing interests

I declare that I have no conflict of interests regarding this research.

Supplementary material

Supplemental data for this article can be accessed here.

Notes

1. There is also a series of studies showing that poverty itself may play a role in perpetuating poverty over time, due to capital market imperfections (e.g. Banerjee & Newman, 1991; Dahan & Tsiddon, 1998; Galor & Zeira, 1993; Loury, 1981; Piketty, 1997).

2. In light of Spears’s (2011) findings, it is possible to speculate that unproductive economic decisions may reach their peak right before payday, because this is also the time of the month that the stock of self-control and cognitive control reach the lowest level after a full month of financial juggling.

3. The expected behavior is also similar if gambling is considered as a form of investment, rather than consumption: investing a small amount of money in exchange for the slim possibility to become rich. Scarcity should drive down such activity, as it is associated with costs today (lower consumption today) and potential benefits tomorrow (high future consumption).

4. A recent review of 42 studies concluded that the estimates of cash transfer on temptation goods suggest that the concerns of abuse of cash transfers for cigarettes and alcohol are unfounded (Evans & Popova, 2017).

5. See Bertrand et al. (2004), Duflo (2006), Shah et al. (2012), Mani et al. (2013), Mullainathan and Shafir (2013), and Bernheim et al. (2015). See also a review article by Haushofer and Fehr (2014) on the relationships between poverty, stress and economic behavior.

6. Pais is supervised by the Ministry of Finance (MOF), which also approves its annual budget and profit distribution. The state benefits from profits (and from income taxes paid by winners) that are used to fund public projects. Pais’s net profit is distributed, according to the MOF guidelines, such that 46.25% is spent on building classes and kindergartens, another 46.25% is distributed to local municipalities, and the remaining 7.5% is provided to cultural and educational projects.

7. A statistical area is a geographic unit (approximately one square mile), defined by the Israel Central Bureau of Statistics (ICBS), with around 3,000–4,000 inhabitants.

8. This list includes 4 variables for standard of living (average monthly income per standard individual, rate of motorization, average vehicle fee and average number of days abroad), 5 employment and retirement variables (percentage of working wage earners aged 15 and over, percentage of women aged 25–54 who are not part of the civilian work force, percentage of working wage earners earning more than double the average wage, percentage of working wage earners earning less than minimum wage and percent of recipients of income support and income supplement to old-age pension), 3 demographic variables (median age, dependency ratio and percent of families with 4 or more children) and 2 education variables (average years of schooling of persons aged 25–54 and percent of academic degree holders aged 25–54).

9. According to data obtained confidentially from one of the biggest banks in Israel, 30% of all workers receive their paycheck on the 1st of the month, 25% between 2nd and the 9th, 25% on the 10th and approximately 12% at the end of the month (the rest get their salary between the 11th and the end of the month). Note that the total of net wages was around 260 billion shekels in 2016. The estimated net wage is calculated using the number of jobs times the average gross wage, excluding the average income tax rate (25%) and other deductions (13%).

10. Pensioners with zero or low income/wealth are entitled to a higher allowance. The share of means-tested old-age pension is 9% of the total spending on allowances for old-age pensioners and survivors in 2016 (Israeli Social Security monthly publication).

11. For comparison, the minimum wage was 4,650 Israeli shekels in 2016.

12. I thank one of the anonymous reviewers for suggesting the inclusion of an interaction between income support payday and jackpot size, as well as adding jackpot size to Table 5.

13. The definition of Banerjee and Mullainathan (2010) for temptation goods is: ‘goods that generate positive utility for the self that consumes them, but not for any previous self that anticipates that they will be consumed in the future.’ Braido et al. (2012) use spending on cigarettes, gambling and alcohol as temptation goods to examine the effect of cash transfer on intra-household allocation.

Additional information

Funding

This research has not received any funds.

Notes on contributors

Momi Dahan

The work of Prof. Dahan reflects a long-term research effort aimed at exploring the roots of economic inequality and its consequences. This research effort resulted in both theoretical, methodological and empirical contributions that have been published in top journals in various academic fields: Economics, Public Policy, Political Science, Environmental Science, Area Studies, and Psychology. Since 2002 Prof. Dahan is a faculty member in School of Public Policy at the Hebrew University. In the years 2011-2014 he headed the School of Public Policy. Prof. Dahan had occupied senior positions in the public sector since he has received his Ph.d. from the economic department of the Hebrew University. He was a chief economist in the Bank of Israel (1989-1999) before he became a senior advisor in the Finance Ministry (1999-2001). He was also a head/member of several public committees. In the years 1997-1999, he served as an economic advisor in both the IMF and IADB.