Fines and Financial Wellbeing

Steven Mello, Dartmouth College and NBER

While survey evidence suggests widespread financial fragility in the U.S., causal evidence on the implications of typical, negative income shocks is scarce. I estimate the impact of speeding fines on household finances using administrative traffic citation records and a panel of credit reports. Event studies reveal that fines averaging $195 are associated with a $34 increase in unpaid bills in collections. Given additional evidence that fine payment explains this effect and that default is the “last resort” for households, I interpret this finding as suggesting rates of inability to meet unplanned expenses which are consistent with the survey evidence. I also find that fines are associated with longer-run declines in credit scores, borrowing limits, and the likelihood of appearing as employed in payroll records covering a subset of large, high-paying employers. This impact on employment situations appears attributable to the diminished financial position of households rather than, e.g., downstream license suspensions.