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Borrowing to Keep Up (with the Joneses): Inequality, Debt, and Conspicuous Consumption

Sheheryar Banuri and Ha Nguyen ()

No 9354, Policy Research Working Paper Series from The World Bank

Abstract: The quest for status is a powerful motivator, but does it affect inequality? This paper presents a novel lab experiment that was designed and conducted to identify the relationship between inequality, status signaling, debt, and conspicuous consumption. It reports three main findings: First, consumption increases when it is "conspicuous" (i.e. is both observable, and signals ability/status). Second, borrowing increases when consumption is conspicuous. More critically, this increase in loan-taking is driven by those at the bottom of the income distribution. Third, in the presence of conspicuous consumption, access to finance exacerbates inequality. The results point to a vicious cycle of inequality and costly borrowing.

Keywords: Access to Finance; Gender and Development; Economic Growth; Industrial Economics; Economic Theory&Research; Inequality; Public Sector Management and Reform (search for similar items in EconPapers)
Date: 2020-08-10
New Economics Papers: this item is included in nep-fdg and nep-pke
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