Income Inequality, Consumption, and Social-Status Seeking
35 Pages Posted: 18 May 2010 Last revised: 24 May 2011
Date Written: May 10, 2010
Abstract
Using the Chinese urban household survey data between 1997 and 2006, we find that income inequality has a negative (positive) impact on households’ consumption (savings), even after we control for family income. We argue that people save to improve their social status when social status is associated with pecuniary and non-pecuniary benefits. Rising income inequality can strengthen the incentives of status-seeking savings by increasing the benefit of improving status and enlarging the wealth level that is required for status upgrading. We also find that the negative effect of income inequality on consumption is stronger for poorer and younger people, and income inequality stimulates more education investment, which are consistent with the status-seeking hypothesis.
Keywords: Income Inequality, Social Status, Consumption and Savings, Status- Seeking, Education Investment
JEL Classification: D12, D91, E21, O16
Suggested Citation: Suggested Citation
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