Conspicuous consumption and income inequality

Sung-Ha HwangBy and Jungmin Lee

Oxford Economic Papers, 2017, vol. 69, issue 4, 870-896

Abstract: The nature of conspicuous consumption can be understood by exploring the channels through which income inequality affects conspicuous consumption. We develop a simple model where comparison references are determined through social interactions and demonstrate: (1) a negative relationship between income inequality and the average level of conspicuous consumption; and (2) a positive relationship between income inequality and the variance of conspicuous consumption. We empirically test these hypotheses using US state-level panel data. We find that a one-standard-deviation increase in the Gini coefficient decreases households’ conspicuous expenditure by about 5%. We also find that higher income inequality increases between-household inequality in conspicuous expenditure.

JEL-codes: D03 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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