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Visible inequality, status competition, and conspicuous consumption: evidence from rural India

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  • Punarjit Roychowdhury

Abstract

If individuals care about their status, defined as their rank in the distribution of conspicuous consumption, a fall in the level of visible inequality is likely to cause them to spend more on conspicuous goods due to increased status competition. I examine this hypothesis using micro data from rural India. Employing an identification strategy based on instrumental variables, I find robust evidence that visible inequality has a negative and significant impact on household conspicuous consumption. Further, my results indicate that the increase in conspicuous expenditure in response to a fall in visible inequality is diverted from education spending which is perceived to have positive social externalities. This suggests that traditional redistributive policies that seek to reduce the level of economic inequality, by encouraging ‘wasteful’ spending of households, might have adverse welfare consequences.

Suggested Citation

  • Punarjit Roychowdhury, 2017. "Visible inequality, status competition, and conspicuous consumption: evidence from rural India," Oxford Economic Papers, Oxford University Press, vol. 69(1), pages 36-54.
  • Handle: RePEc:oup:oxecpp:v:69:y:2017:i:1:p:36-54.
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    File URL: http://hdl.handle.net/10.1093/oep/gpw056
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    Cited by:

    1. repec:ebl:ecbull:eb-18-00066 is not listed on IDEAS
    2. repec:eee:jbrese:v:86:y:2018:i:c:p:386-393 is not listed on IDEAS
    3. repec:eee:wdevel:v:114:y:2019:i:c:p:122-137 is not listed on IDEAS

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development
    • Z13 - Other Special Topics - - Cultural Economics - - - Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification

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