Less Food for More Status: Caste Inequality and Conspicuous Consumption in India

Even under the direst necessity, Indian households do not seem to spend their budget in a rational of survival: households from lower castes choose to consume less food and more visible items than similar households from high castes, and this difference is stronger for the poor. Using variations in upper caste wealth across regions, we show that disadvantaged castes substitute visible consumption for food when upper castes are relatively richer. In regions where Upper Castes are twice richer, low caste households spend up to 8% more on visible and similarly less on food. For households under $2 dollars a day, it corresponds to a daily budget reallocation of 15 dollar cents. We argue that consumption choices can be partly explained by a preference for status, which depends on inequality between caste groups. Importantly, preferences are upward-looking between castes: the high caste is society's reference group, and households outside of the caste system are not affected by it. Our results are not driven by general equilibrium effects on prices and no similar effect is observed on other expenditures. They underline the relevance of caste-targeted policies in the process of development.