Adolescent Alcohol Use and Intergenerational Transfers: Evidence from Micro Data

Using the first seven waves (1997–2003) of the National Longitudinal Survey of Youth 1997 (NLSY97), this paper investigates the effect of adolescent alcohol use on the amount of transfers they receive from their parents. Exploiting cross state and time variation in the price of alcohol, the main finding is that greater binge drinking among youths is associated with receiving significantly lower parental transfers. From a theoretical standpoint, one way to interpret this finding is to imagine an altruistic parent using pecuniary incentives to influence child behavior. Given that for many teenagers parental allowance is an important component of their income, limiting and monitoring such transfers may help reducing the chances of excessive drinking by youth.