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Income Inequality, Status Seeking, and Consumption

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  • Jin, Ye
  • Wu, Binzhen
  • Li, Hongbin

Abstract

Using the Chinese urban household survey data between 1997 and 2006, we find that income inequality has a negative (positive) impact on households’ consumption (savings), even after we control for family 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 enlarging the wealth level that is required for status upgrading. We also find that the negative effect of income inequality on consumption is stronger for poorer and younger people, and income inequality stimulates more education investment, which are consistent with the status seeking hypothesis.

Suggested Citation

  • Jin, Ye & Wu, Binzhen & Li, Hongbin, 2010. "Income Inequality, Status Seeking, and Consumption," MPRA Paper 22641, University Library of Munich, Germany, revised 10 May 2010.
    • Handle: RePEc:pra:mprapa:22641
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    File URL: https://mpra.ub.uni-muenchen.de/22641/1/MPRA_paper_22641.pdf
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    References listed on IDEAS

    as
    1. Alesina, Alberto & Perotti, Roberto, 1996. "Income distribution, political instability, and investment," European Economic Review, Elsevier, vol. 40(6), pages 1203-1228, June.
    2. Pham, Thi Kim Cuong, 2005. "Economic growth and status-seeking through personal wealth," European Journal of Political Economy, Elsevier, vol. 21(2), pages 407-427, June.
    3. Shang-Jin Wei & Xiaobo Zhang, 2011. "The Competitive Saving Motive: Evidence from Rising Sex Ratios and Savings Rates in China," Journal of Political Economy, University of Chicago Press, vol. 119(3), pages 511-564.
    4. Clark, Andrew E. & Oswald, Andrew J., 1996. "Satisfaction and comparison income," Journal of Public Economics, Elsevier, vol. 61(3), pages 359-381, September.
    5. Corneo, Giacomo & Jeanne, Olivier, 1999. "Social Organization in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 40(3), pages 711-725, August.
    6. Corneo, Giacomo & Jeanne, Olivier, 1998. "Social organization, status, and savings behavior," Journal of Public Economics, Elsevier, vol. 70(1), pages 37-51, October.
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    Cited by:

    1. David Pejčoch, 2014. "CADAQUES: The Methodology for Complex Data and Information Management [CADAQUES: Metodika pro komplexní řízení kvality dat a informací]," Acta Informatica Pragensia, Prague University of Economics and Business, vol. 2014(1), pages 44-56.
    2. Chen, Xi, 2013. "Relative Deprivation in China," MPRA Paper 48582, University Library of Munich, Germany.

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    More about this item

    Keywords

    income inequality; social status; consumption and savings; status seeking; education investment;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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