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A Model of the Relative Income Hypothesis

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  • Shane Sanders

Abstract

James Duesenberry's (1949) relative income hypothesis holds substantial empirical credibility, as well as a rich set of implications. Although present in the pages of leading economics journals, the hypothesis has become all but foreign to the blackboards of economics classrooms. To help reintegrate the concept into the undergraduate economics curriculum, the author constructs a model of the relative income hypothesis to present a few of its important properties and implications. Negative spending externalities, the effect of public provision taxes on wasteful spending races, and the Pareto implications of universal income growth are illustrated within a two-good consumption space as a method of introducing this rich literature to a greater number of introductory and intermediate economics students.

Suggested Citation

  • Shane Sanders, 2010. "A Model of the Relative Income Hypothesis," The Journal of Economic Education, Taylor & Francis Journals, vol. 41(3), pages 292-305, June.
    • Handle: RePEc:taf:jeduce:v:41:y:2010:i:3:p:292-305
    DOI: 10.1080/00220485.2010.486733
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    References listed on IDEAS

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    2. Brian Burgoon & Sam van Noort & Matthijs Rooduijn & Geoffrey Underhill, 2018. "Radical Right Populism and the Role of Positional Deprivation and Inequality," LIS Working papers 733, LIS Cross-National Data Center in Luxembourg.
    3. Altman, Morris, 2014. "Insights from behavioral economics on how labor markets work," Working Paper Series 3466, Victoria University of Wellington, School of Economics and Finance.
    4. John Grable & Sam Cupples & Fred Fernatt & NaRita Anderson, 2013. "Evaluating the Link Between Perceived Income Adequacy and Financial Satisfaction: A Resource Deficit Hypothesis Approach," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 114(3), pages 1109-1124, December.
    5. Tazeb Bisset & Dagmawe Tenaw, 2022. "Keeping up with the Joneses: macro-evidence on the relevance of Duesenberry’s relative income hypothesis in Ethiopia," Journal of Social and Economic Development, Springer;Institute for Social and Economic Change, vol. 24(2), pages 549-564, December.
    6. Shane Sanders, 2023. "Environmental Status Goods and Market-Based Conservation: An Arm of Ostrom’s Polycentric Approach?," Sustainability, MDPI, vol. 15(5), pages 1-9, February.

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