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Borrowing to Keep Up (with the Joneses) : Inequality, Debt, and Conspicuous Consumption

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  • Banuri,Sheheryar
  • Nguyen,Ha Minh

Abstract

The quest for status is a powerful motivator, but does it affect inequality? This paper presents a novel lab experiment that was designed and conducted to identify the relationship between inequality, status signaling, debt, and conspicuous consumption. It reports three main findings: First, consumption increases when it is "conspicuous" (i.e. is both observable, and signals ability/status). Second, borrowing increases when consumption is conspicuous. More critically, this increase in loan-taking is driven by those at the bottom of the income distribution. Third, in the presence of conspicuous consumption, access to finance exacerbates inequality. The results point to a vicious cycle of inequality and costly borrowing.

Suggested Citation

  • Banuri,Sheheryar & Nguyen,Ha Minh, 2020. "Borrowing to Keep Up (with the Joneses) : Inequality, Debt, and Conspicuous Consumption," Policy Research Working Paper Series 9354, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9354
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    More about this item

    Keywords

    Access to Finance; Gender and Development; Economic Growth; Industrial Economics; Economic Theory&Research; Inequality; Public Sector Management and Reform;
    All these keywords.

    JEL classification:

    • G4 - Financial Economics - - Behavioral Finance
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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