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Borrowing to keep up (with the Joneses): Inequality, debt, and conspicuous consumption

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  • Banuri, Sheheryar
  • Nguyen, Ha

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 conspicuous consumption, access to credit, and inequality. We report four main findings: First, consumption increases when it is “conspicuous” (i.e., is both observable and signaling ability). Second, costly borrowing increases when consumption is conspicuous. Third, the increase in costly borrowing is driven by those at lower income levels. Finally, in the presence of conspicuous consumption, access to credit exacerbates inequality.

Suggested Citation

  • Banuri, Sheheryar & Nguyen, Ha, 2023. "Borrowing to keep up (with the Joneses): Inequality, debt, and conspicuous consumption," Journal of Economic Behavior & Organization, Elsevier, vol. 206(C), pages 222-242.
  • Handle: RePEc:eee:jeborg:v:206:y:2023:i:c:p:222-242
    DOI: 10.1016/j.jebo.2022.12.001
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    More about this item

    Keywords

    Inequality; Socioeconomic status; Conspicuous consumption; Veblen goods; Access to credit;
    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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