Trickle-Down Consumption

Marianne Bertrand and Adair Morse
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Adair Morse: University of California at Berkeley, Haas School of Business, and NBER

The Review of Economics and Statistics, 2016, vol. 98, issue 5, 863-879

Abstract: We document that nonrich households consume a larger share of their current income when exposed to higher top income and consumption levels. Permanent income, wealth effects, and upward local price pressures cannot provide the sole explanation for this finding. Instead, we show that the budget shares that nonrich households allocate to more visible goods and services rise with top income levels, consistent with status-maintaining explanations for our primary finding. Nonrich households might have saved up to 3% more annually by the mid-2000s had incomes at the top grown at the same rate as median income since the early 1980s.

Date: 2016
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Related works:
Working Paper: Trickle-Down Consumption (2015)
Working Paper: Trickle-Down Consumption (2013)
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