Trickle-Down Consumption

60 Pages Posted: 9 Mar 2015

See all articles by Marianne Bertrand

Marianne Bertrand

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Adair Morse

University of California, Berkeley - Haas School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2015

Abstract

Using state-level variation over time in the top deciles of the income distribution, we observe that non-rich households consume a larger share of their current income when exposed to a higher top income and consumption levels. We argue that permanent income, wealth effects, and upward local price pressures cannot provide the sole explanation for this finding. Instead we show that the budget shares which non-rich households allocate to more visible goods and services rise with top income levels, consistent with status-maintaining explanations for our primary finding. Non-rich households exposed to higher top income levels self-report more financial duress; moreover, higher top income levels in a state are correlated with more personal bankruptcy filings. Non-rich households might have saved up to 3 percent more annually by the mid-2000s had incomes at the top grown at the same rate as median income since the early 1980s.

Keywords: consumption, income inequality, savings, status

JEL Classification: D14

Suggested Citation

Bertrand, Marianne and Morse, Adair, Trickle-Down Consumption (March 2015). CEPR Discussion Paper No. DP10468. Available at SSRN: https://ssrn.com/abstract=2575772

Marianne Bertrand (Contact Author)

University of Chicago - Booth School of Business ( email )

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HOME PAGE: http://gsbwww.uchicago.edu/fac/marianne.bertrand/vita/cv_0604.pdf

National Bureau of Economic Research (NBER) ( email )

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Centre for Economic Policy Research (CEPR)

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Adair Morse

University of California, Berkeley - Haas School of Business ( email )

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2220 Piedmont Avenue
Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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