Habits and Envy: What Drives the Consumption Behavior of U.S. Households? Evidence from PSID, 1999-2009

Kai Schmid and Moritz Drechsel-Grau

No 123-2013, IMK Working Paper from IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute

Abstract: In this paper we estimate the relevance of habits versus interpersonal comparisons for the consumption behavior of U.S. households. We exploit information from the recently released consumption expenditure data of the Panel Study of Income Dynamics (PSID) covering the time span from 1999 to 2009. We find that both habits, measured as lagged consumption, and envy motives, measured as reactions of consumption to consumption changes of households that are perceived to be richer, matter substantially. Hence, household consumption is not only determined by habit persistence but also by interpersonal comparisons. Most importantly, our estimations reveal that envy motives might play a much more prominent role for households' consumption choices than habits do.

Keywords: Household Consumption; Reference Consumption; Habits; Relative Income Hypothesis; Difference GMM; PSID (search for similar items in EconPapers)
JEL-codes: C23 D12 D91 E21 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2013
New Economics Papers: this item is included in nep-hme and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:imk:wpaper:123-2013

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