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Income inequality, consumption, and social-status seeking

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Listed author(s):
  • 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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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
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622864

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

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Cited by:

  1. Diaz-Serrano, Luis & Rodriguez-Pose, Andres, 2011. "Decentralization, Happiness, and the Perception of Institutions," CEPR Discussion Papers 8356, C.E.P.R. Discussion Papers.
  2. Tyers, Rod, 2015. "International effects of China's rise and transition: Neoclassical and Keynesian perspectives," Journal of Asian Economics, Elsevier, vol. 37(C), pages 1-19.
  3. Lingsheng Meng & Binzhen Wu & Zhaoguo Zhan, 2016. "Linear regression with an estimated regressor: applications to aggregate indicators of economic development," Empirical Economics, Springer, vol. 50(2), pages 299-316, March.
  4. Saravana Jaikumar & Ankur Sarin, 2015. "Conspicuous consumption and income inequality in an emerging economy: evidence from India," Marketing Letters, Springer, vol. 26(3), pages 279-292, September.
  5. van Treeck, Till. & Sturn, Simon., 2012. "Income inequality as a cause of the Great Recession? : A survey of current debates," ILO Working Papers 994709343402676, International Labour Organization.
  6. M A B Siddique & Heru Wibowo & Yanrui Wu, 2014. "Fiscal Decentralisation and Inequality in Indonesia: 1999-2008," Economics Discussion / Working Papers 14-22, The University of Western Australia, Department of Economics.
  7. Pan, Yao, 2016. "Understanding the rural and urban household saving rise in China," Regional Science and Urban Economics, Elsevier, vol. 56(C), pages 46-59.

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