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Do Relative Income and Income Inequality Affect Consumption? Evidence from the Villages of Rural China

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  • Wenkai Sun
  • Xianghong Wang

Abstract

This article examines how a household's consumption rate is affected by its relative income and income inequality within a community. Based on the theory of social status seeking in consumption, we test hypotheses related to these factors using a unique panel data set of rural households in China observed within a few hundred villages between 2003 and 2006. We find that the household's consumption rate is negatively related to the relative income position after controlling for the absolute income, and positively related to the income inequality of the village. We confirm these with different measurements of relative position.

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  • Wenkai Sun & Xianghong Wang, 2013. "Do Relative Income and Income Inequality Affect Consumption? Evidence from the Villages of Rural China," Journal of Development Studies, Taylor & Francis Journals, vol. 49(4), pages 533-546, April.
    • Handle: RePEc:taf:jdevst:v:49:y:2013:i:4:p:533-546
    DOI: 10.1080/00220388.2012.740017
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    1. Thorstein Veblen, 1899. "Mr. Cummings's Strictures on "The Theory of the Leisure Class"," Journal of Political Economy, University of Chicago Press, vol. 8, pages 106-106.
    2. Veblen, Thorstein, 1899. "The Theory of the Leisure Class," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number veblen1899.
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    Cited by:

    1. Nan Zhao & Wanqing Liao & Jun Xia & Zizhe Zhang, 2023. "The effect of intergenerational mobility on family education investment: evidence from China," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.
    2. Song, Yang & Zhou, Guangsu, 2019. "Inequality of opportunity and household education expenditures: Evidence from panel data in China," China Economic Review, Elsevier, vol. 55(C), pages 85-98.
    3. Song, Yang & Wu, Weixing & Zhou, Guangsu, 2020. "Inequality of opportunity and household risky asset investment: Evidence from panel data in China," China Economic Review, Elsevier, vol. 63(C).
    4. Kai Liu & Xianghong Wang, 2017. "Relative Income and Income Satisfaction: An Experimental Study," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 132(1), pages 395-409, May.
    5. Xiaodi Qin & Haitao Wu & Yifeng Xie & Xiaofang Zhang, 2022. "Lagging behind the Joneses: Relative Deprivation and Household Consumption in Rural China," Agriculture, MDPI, vol. 12(11), pages 1-14, November.
    6. Debajyoti Chakrabarty, 2023. "Relative deprivation, time preference, and economic growth," International Journal of Economic Theory, The International Society for Economic Theory, vol. 19(3), pages 489-525, September.
    7. Ozlem Albayrak, 2020. "Household Consumption, Household Indebtedness, and Inequality in Turkey: A Microeconometric Analysis," Economics Working Paper Archive wp_954, Levy Economics Institute.
    8. Chen, Yuanyuan & Yuan, Meng & Zhang, Min, 2023. "Income inequality and educational expenditures on children: Evidence from the China Family Panel Studies," China Economic Review, Elsevier, vol. 78(C).

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