Income Inequality, Consumption, and Social-Status Seeking

35 Pages Posted: 18 May 2010 Last revised: 24 May 2011

See all articles by Jin Ye

Jin Ye

affiliation not provided to SSRN

Li Hongbin

Tsinghua University

Binzhen Wu

Tsinghua University - School of Economics & Management

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

Ye, Jin and Hongbin, Li and Wu, Binzhen, Income Inequality, Consumption, and Social-Status Seeking (May 10, 2010). Available at SSRN: https://ssrn.com/abstract=1604047 or http://dx.doi.org/10.2139/ssrn.1604047

Jin Ye

affiliation not provided to SSRN ( email )

Li Hongbin

Tsinghua University ( email )

Beijing, 100084
China

Binzhen Wu (Contact Author)

Tsinghua University - School of Economics & Management ( email )

School of Economics and Management
Tsinghua University
Beijing, Beijing 100084
China

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