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Income inequality, consumption, and social-status seeking

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  • Jin, Ye
  • Li, Hongbin
  • Wu, Binzhen

Abstract

Using the Chinese Urban Household Survey data between 1997 and 2006, we find that income inequality has a negative (positive) effect on household consumption net of education expenditures (savings) even after we control for household income. We argue that people save to improve their social status when social status is associated with pecuniary and non-pecuniary benefits. Rising income inequality can strengthen the incentives of status-seeking savings by increasing the benefit of improving status, and by enlarging the wealth level required for status upgrading. We also find that the negative effect of income inequality on consumption is stronger for poorer and younger people and that income inequality stimulates more education investment, which are consistent with the status-seeking hypothesis.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Comparative Economics.

Volume (Year): 39 (2011)
Issue (Month): 2 (June)
Pages: 191-204

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Handle: RePEc:eee:jcecon:v:39:y:2011:i:2:p:191-204

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Web page: http://www.elsevier.com/locate/inca/622864

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Keywords: Income inequality Social status Consumption and savings Status seeking Education investment;

References

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Cited by:
  1. Rod Tyers, 2014. "International Effects of China’s Rise and Transition: Neoclassical and Keynesian Perspectives," CAMA Working Papers, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University 2014-05, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

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