Consumption Network Effects

58 Pages Posted: 20 Jun 2016

See all articles by Giacomo De Giorgi

Giacomo De Giorgi

University College London; NBER; Federal Reserve Banks - Federal Reserve Bank of New York

Anders Frederiksen

IZA Institute of Labor Economics

Luigi Pistaferri

Stanford University; Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: June 2016

Abstract

In this paper we study consumption network effects. Does the consumption of our peers affect our own consumption? How large is such effect? What are the economic mechanisms behind it? We use long panel data on the entire Danish population to construct a measure of consumption based on administrative tax records on income and assets. We combine tax record data with matched employer-employee data so that we can construct peer groups based on workplace, which gives us a much tighter, precise, and credible definition of networks than used in previous literature. We use the available data to construct peer groups that do not perfectly overlap, and as such provide valid instruments derived from the network structure of one's peers group. The longitudinal nature of our data also allow us to estimate fixed effects models, which help us tackle reflection, self-selection, and common-shocks issues all at once. We estimate non-negligible and statistically significant endogenous and exogenous peer effects. Estimated effects are quite relevant for policies as they generate non-negligible multiplier effect. We also investigate what mechanisms generate such effects, distinguishing between "keeping up with the Joneses", a status model, and a more traditional risk sharing view.

Suggested Citation

De Giorgi, Giacomo and Frederiksen, Anders and Pistaferri, Luigi, Consumption Network Effects (June 2016). NBER Working Paper No. w22357. Available at SSRN: https://ssrn.com/abstract=2797951

Giacomo De Giorgi (Contact Author)

University College London ( email )

Gower Street
London
United Kingdom

NBER ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Anders Frederiksen

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Luigi Pistaferri

Stanford University ( email )

Stanford, CA 94305
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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