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Redistribution and the notion of social status

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  • Bilancini, Ennio
  • Boncinelli, Leonardo

Abstract

We study the impact of redistributive policies when agents can signal their social status by spending on a conspicuous good. Our focus is on how the shape of the status function – i.e., how social status is computed and evaluated – can affect the equilibrium outcome of the model, and in particular the relationship between inequality and wasteful conspicuous consumption. We find that if status depends in an ordinal way on individuals' relative standing in terms of economic resources, then redistributing resources from the rich to the poor increases social waste because it forces the rich to spend more on conspicuous consumption in order to differentiate themselves from the poor. If, instead, status depends in a cardinal way on individuals' relative standing, then a redistribution of resources in favor of the poor can reduce social waste. This is possible because under cardinal status there is an additional effect: a lesser degree of inequality decreases the value of social status and, hence, reduces the incentives to engage in wasteful social competition. If this second effect is stronger than the first one, then social waste reduces. In this case a Pareto improvement is also possible but it requires, in addition, that the rich save enough on costly signaling to compensate for the losses due to the reduction of economic resources.

Suggested Citation

  • Bilancini, Ennio & Boncinelli, Leonardo, 2012. "Redistribution and the notion of social status," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 651-657.
  • Handle: RePEc:eee:pubeco:v:96:y:2012:i:9:p:651-657
    DOI: 10.1016/j.jpubeco.2012.05.007
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    Cited by:

    1. Bilancini, Ennio & Boncinelli, Leonardo, 2014. "Instrumental cardinal concerns for social status in two-sided matching with non-transferable utility," European Economic Review, Elsevier, vol. 67(C), pages 174-189.
    2. König, Tobias & Lausen, Tobias, 2016. "Relative consumption preferences and public provision of private goods," Discussion Papers, Research Unit: Market Behavior SP II 2016-213, Social Science Research Center Berlin (WZB).
    3. König, Tobias & Lausen, Tobias & Wagener, Andreas, 2016. "Image concerns and the political economy of publicly provided private goods," Discussion Papers, Research Unit: Market Behavior SP II 2016-214, Social Science Research Center Berlin (WZB).
    4. Bilancini, Ennio & D'Alessandro, Simone, 2012. "Long-run welfare under externalities in consumption, leisure, and production: A case for happy degrowth vs. unhappy growth," Ecological Economics, Elsevier, vol. 84(C), pages 194-205.
    5. König, Tobias & Lausen, Tobias, 2017. "Relative Consumption Preferences and Public Provision of Private Goods," Rationality and Competition Discussion Paper Series 18, CRC TRR 190 Rationality and Competition.
    6. Friehe, Tim & Mechtel, Mario, 2014. "Conspicuous consumption and political regimes: Evidence from East and West Germany," European Economic Review, Elsevier, vol. 67(C), pages 62-81.
    7. Florian Baumann & Tim Friehe & Inga Hillesheim, 2015. "Status and Liability," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 171(2), pages 285-307, June.

    More about this item

    Keywords

    Social status; Consumption externalities; Redistribution; Signaling; Conspicuous consumption; Income inequality;

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D62 - Microeconomics - - Welfare Economics - - - Externalities

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