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Keeping Up With the Joneses: Analyzing the Effect of Income Inequality on Consumer Borrowing

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Author Info
Markus Christen ()
Ruskin Morgan ()
Abstract

Household debt relative to disposable income increased from 60% in 1980 to 104% at the end of 2003. ‘Buying on credit’ has become so popular that an increasing number of firms generate more profit from financing than from selling their products. In this paper, we show that rising income inequality has substantially contributed to increased consumer borrowing. Income inequality affects all components of total household debt, but the impact is strongest on non-revolving debt (installment loans), which is used to finance the purchase of consumer durables. We argue and provide evidence that the income inequality effect on consumer borrowing is a result of conspicuous consumption. Rising income inequality has forced households with smaller income gains to use debt to keep up their consumption level relative to households with larger income gains. Copyright Springer Science + Business Media, Inc. 2005

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File URL: http://hdl.handle.net/10.1007/s11129-005-0351-1
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Publisher Info
Article provided by Springer in its journal Quantitative Marketing and Economics.

Volume (Year): 3 (2005)
Issue (Month): 2 (June)
Pages: 145-173
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Handle: RePEc:kap:qmktec:v:3:y:2005:i:2:p:145-173

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Web page: http://www.springerlink.com/link.asp?id=111240

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Related research
Keywords: debt puzzle; consumer credit; income inequality; conspicuous consumption;

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

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  14. Feinberg, Richard A, 1986. " Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation," Journal of Consumer Research: An Interdisciplinary Quarterly, University of Chicago Press, vol. 13(3), pages 348-56, December.
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  1. Matteo Iacoviello, 2005. "Household Debt and Income Inequality, 1963-2003," Boston College Working Papers in Economics 629, Boston College Department of Economics, revised 18 Oct 2007. [Downloadable!]
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