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Competitive Conspicuous Consumption, Household Saving and Income inequality

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  • Walther Herbert

    () (Department of Economics, Vienna University of Economics & B.A.)

Abstract

An intertemporal decision model is presented in which subjects save less for retirement than the permanent income hypothesis predicts, signaling optimistic income prospects (and therefore high latent productivity) to possible partners in productive exchanges. Competitive conspicuous consumption (CCC), as it is called, is a self-defeating strategy, if followed by subjects simultaneously. Egalitarian policies (which have to be distinguished from pure welfare policies) tend to lower excess consumption. The CCC-hypothesis justifies a cross-sectional Keynesian consumption function with declining marginal propensities to consume. It is argued that the cultural context is highly relevant to the scope and importance of CCC.

Suggested Citation

  • Walther Herbert, 2004. "Competitive Conspicuous Consumption, Household Saving and Income inequality," Working Papers geewp40, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
  • Handle: RePEc:wiw:wiwgee:geewp40
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    References listed on IDEAS

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    1. Abel, Andrew B, 1990. "Asset Prices under Habit Formation and Catching Up with the Joneses," American Economic Review, American Economic Association, vol. 80(2), pages 38-42, May.
    2. Harbaugh, Richmond, 1996. "Falling behind the Joneses: relative consumption and the growth-savings paradox," Economics Letters, Elsevier, vol. 53(3), pages 297-304, December.
    3. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    4. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," JCPR Working Papers 203, Northwestern University/University of Chicago Joint Center for Poverty Research.
    5. Hirschman, Albert O., 1973. "The changing tolerance for income inequality in the course of economic development," World Development, Elsevier, vol. 1(12), pages 29-36, December.
    6. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
    7. Campbell, John Y, 1987. "Does Saving Anticipate Declining Labor Income? An Alternative Test of the Permanent Income Hypothesis," Econometrica, Econometric Society, vol. 55(6), pages 1249-1273, November.
    8. Albert O. Hirschman & Michael Rothschild, 1973. "The Changing Tolerance for Income Inequality in the Course of Economic DevelopmentWith A Mathematical Appendix," The Quarterly Journal of Economics, Oxford University Press, vol. 87(4), pages 544-566.
    9. Chiuri, Maria Concetta & Jappelli, Tullio, 2003. "Financial market imperfections and home ownership: A comparative study," European Economic Review, Elsevier, vol. 47(5), pages 857-875, October.
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    More about this item

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

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