Substance Use and Recessions

In this paper, I conduct a review of the economics literature examining the relationship between alcohol use and the macro economy comparing methods, measures and findings. Like illicit drug consumption, the relationship between alcohol use and economic conditions is not entirely straightforward since there are various theoretical explanations for why they might be positively or negatively related. Empirical findings suggest that the relationship between drinking and the economy depends on the type of user and whether use is examined in developing or developed countries. In developed countries, heavy drinkers consume less in a downturn, while light drinkers consume more. This pro-cyclical relationship found for heavy drinking does not hold for developed countries where disposable income is low. The implications for researchers interested in understanding how illicit drug consumption varies with the business cycle are that they must be careful to consider differential responses across user types as well as expensive and inexpensive drugs.