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Conspicuous consumption and income inequality

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  • Sung-Ha HwangBy
  • Jungmin Lee

Abstract

The nature of conspicuous consumption can be understood by exploring the channels through which income inequality affects conspicuous consumption. We develop a simple model where comparison references are determined through social interactions and demonstrate: (1) a negative relationship between income inequality and the average level of conspicuous consumption; and (2) a positive relationship between income inequality and the variance of conspicuous consumption. We empirically test these hypotheses using US state-level panel data. We find that a one-standard-deviation increase in the Gini coefficient decreases households’ conspicuous expenditure by about 5%. We also find that higher income inequality increases between-household inequality in conspicuous expenditure.

Suggested Citation

  • Sung-Ha HwangBy & Jungmin Lee, 2017. "Conspicuous consumption and income inequality," Oxford Economic Papers, Oxford University Press, vol. 69(4), pages 870-896.
    • Handle: RePEc:oup:oxecpp:v:69:y:2017:i:4:p:870-896.
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    File URL: http://hdl.handle.net/10.1093/oep/gpw060
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    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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