Keeping Up With the Joneses: Analyzing the Effect of Income Inequality on Consumer Borrowing

Markus Christen () and Ruskin Morgan ()

Quantitative Marketing and Economics (QME), 2005, vol. 3, issue 2, 145-173

Abstract: Household debt relative to disposable income increased from 60% in 1980 to 104% at the end of 2003. ‘Buying on credit’ has become so popular that an increasing number of firms generate more profit from financing than from selling their products. In this paper, we show that rising income inequality has substantially contributed to increased consumer borrowing. Income inequality affects all components of total household debt, but the impact is strongest on non-revolving debt (installment loans), which is used to finance the purchase of consumer durables. We argue and provide evidence that the income inequality effect on consumer borrowing is a result of conspicuous consumption. Rising income inequality has forced households with smaller income gains to use debt to keep up their consumption level relative to households with larger income gains. Copyright Springer Science + Business Media, Inc. 2005

Keywords: debt puzzle; consumer credit; income inequality; conspicuous consumption (search for similar items in EconPapers)
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (77)

Downloads: (external link)
http://hdl.handle.net/10.1007/s11129-005-0351-1 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:qmktec:v:3:y:2005:i:2:p:145-173

Ordering information: This journal article can be ordered from
http://www.springer. ... ng/journal/11129/PS2

DOI: 10.1007/s11129-005-0351-1

Access Statistics for this article

Quantitative Marketing and Economics (QME) is currently edited by Pradeep Chintagunta

More articles in Quantitative Marketing and Economics (QME) from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().