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Does inequality affect the consumption patterns of the poor? – The role of status seeking behaviour

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  • Sugata Marjit

    (Centre for Studies in Social Sciences, Calcutta)

  • Sattwik Santra

    (Centre for Studies in Social Sciences, Calcutta)

  • Koushik Kumar Hati

    (Centre for Studies in Social Sciences, Calcutta)

Abstract

We consider a situation where the relatively ‘poor’ are concerned about their relative income status with respect to a relevant reference group. Such a concern is explicitly introduced in a utility function to study the consumption and saving behavior of the poor in terms of a static and dynamic model. The static model points toward a possible conflict between income based and nutrition-based measure of poverty. The dynamic model exhibits the possibility of a higher rate of accumulation coupled with an inadequate nutritional intake, relative to a situation where there is no such concern for status. Thus, growth with malnutrition may also imply a conflict between different measures of poverty. Both the models point toward a direct and negative relationship between inequality and share of nutritional consumption as reflected in the consumption of food. Finally the paper looks at the empirical relationship between inequality and consumption across districts within states of India. The hypotheses that inequality impacts consumption patterns via status effect cannot be rejected. In fact the impact seems to be significant across a number of the Indian states.

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Bibliographic Info

Paper provided by School of Economics, University of Queensland, Australia in its series Discussion Papers Series with number 514.

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Date of creation: 15 Jan 2014
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Handle: RePEc:qld:uq2004:514

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  1. Mujcic, Redzo & Frijters, Paul, 2010. "Economic Choices and Status: Measuring Preferences for Income Rank," IZA Discussion Papers 5157, Institute for the Study of Labor (IZA).
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  8. Christian Ghiglino & Sanjeev Goyal, 2008. "Keeping up with the neighbours: social interaction in a market economy," Economics Discussion Papers 655, University of Essex, Department of Economics.
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  10. Rasmus Heltberg, 2009. "Malnutrition, poverty, and economic growth," Health Economics, John Wiley & Sons, Ltd., vol. 18(S1), pages S77-S88, April.
  11. Omer Moav and & Zvika Neeman, 2012. "Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital," Economic Journal, Royal Economic Society, vol. 122(563), pages 933-956, 09.
  12. Frank, Robert H, 1985. "The Demand for Unobservable and Other Nonpositional Goods," American Economic Review, American Economic Association, vol. 75(1), pages 101-16, March.
  13. Easterlin, Richard A, 2001. "Income and Happiness: Towards an Unified Theory," Economic Journal, Royal Economic Society, vol. 111(473), pages 465-84, July.
  14. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  15. Ferrer-i-Carbonell, Ada, 2005. "Income and well-being: an empirical analysis of the comparison income effect," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 997-1019, June.
  16. Marjit, Sugata & Roychowdhury, Punarjit, 2012. "Inequality, status effects and trade," MPRA Paper 40225, University Library of Munich, Germany.
  17. Robinson, Peter M, 1988. "Root- N-Consistent Semiparametric Regression," Econometrica, Econometric Society, vol. 56(4), pages 931-54, July.
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