TRICKLE-DOWN CONSUMPTION

We document that nonrich households consume a larger share of their current income when exposed to higher top income and consumption levels. Permanent income, wealth effects, and upward local price pressures cannot provide the sole explanation for this finding. Instead, we show that the budget share...

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Bibliographic Details
Published in:The review of economics and statistics 2016-12, Vol.98 (5), p.863-879
Main Authors: Bertrand, Marianne, Morse, Adair
Format: Article
Language:English
Subjects:
Consumption
Family income
Households
Resource allocation
Savings
Status
Studies
Wealth
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Summary:We document that nonrich households consume a larger share of their current income when exposed to higher top income and consumption levels. Permanent income, wealth effects, and upward local price pressures cannot provide the sole explanation for this finding. Instead, we show that the budget shares that nonrich households allocate to more visible goods and services rise with top income levels, consistent with statusmaintaining explanations for our primary finding. Nonrich households might have saved up to 3% more annually by the mid-2000s had incomes at the top grown at the same rate as median income since the early 1980s.
ISSN:0034-6535
1530-9142
DOI:10.1162/REST_a_00613