Conspicuous consumption and income inequality

The nature of conspicuous consumption can be understood by exploring the channels through which income inequality affects conspicuous consumption. We develop a simple model where comparison references are determined through social interactions and demonstrate: (1) a negative relationship between inc...

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Bibliographic Details
Published in:Oxford economic papers 2017-10, Vol.69 (4), p.870-896
Main Authors: Hwang, Sung-Ha, Lee, Jungmin
Format: Article
Language:English
Subjects:
Conspicuous consumption
Consumption
Deviation
Expenditures
Households
Income inequality
Panel data
Social interaction
Studies
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Summary:The nature of conspicuous consumption can be understood by exploring the channels through which income inequality affects conspicuous consumption. We develop a simple model where comparison references are determined through social interactions and demonstrate: (1) a negative relationship between income inequality and the average level of conspicuous consumption; and (2) a positive relationship between income inequality and the variance of conspicuous consumption. We empirically test these hypotheses using US state-level panel data. We find that a one-standard-deviation increase in the Gini coefficient decreases households’ conspicuous expenditure by about 5%. We also find that higher income inequality increases between-household inequality in conspicuous expenditure.
ISSN:0030-7653
1464-3812
DOI:10.1093/oep/gpw060