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Signalling to whom? Conspicuous spending and the local density of the social group income distribution

Andreas Chai and Wolfhard Kaus

Papers on Economics and Evolution from Philipps University Marburg, Department of Geography

Abstract: We empirically evaluate two competing explanations about how the dispersion of income within social groups affects household spending on visible goods. Using South African household expenditure data, we find evidence that precisely the reverse of the effect predicted by Charles et al. (2009) takes place in that rich households tend to reduce, rather than increase, spending on visible goods as the dispersion of social group income increases. Our results instead support rank-based models of status competition since the number of within-group peers who possess a similar income level is found to be positively correlated with household spending on visible goods. Moreover, we find that the effect of this 'local' density tends to be stronger in the tail regions of the distribution and performs better than other proxies for the overall income distribution used in recent studies. How the range of visible goods used to signal wealth expands as household income grows is also explored.

Keywords: Conspicuous consumption; Signaling; Status; South Africa; Income distribution (search for similar items in EconPapers)
JEL-codes: D12 D83 J15 O12 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2013-01-29
New Economics Papers: this item is included in nep-afr, nep-dem, nep-hme, nep-ltv, nep-pbe and nep-ure
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Persistent link: https://EconPapers.repec.org/RePEc:esi:evopap:2012-18

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