Borrowing to Keep Up (With the Joneses): Inequality, Debt, and Conspicuous Consumption

33 Pages Posted: 31 Dec 2020

See all articles by Sheheryar Banuri

Sheheryar Banuri

University of East Anglia (UEA) - School of Economic and Social Studies; University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS)

Ha Nguyen

International Monetary Fund (IMF)

Date Written: September 30, 2020

Abstract

The quest for status is a powerful motivator, but does it affect inequality? This paper presents a novel lab experiment that was designed and conducted to identify the relationship between inequality, status signaling, debt, and conspicuous consumption. It reports three main findings: First, consumption increases when it is “conspicuous” (i.e. is both observable, and signals ability/status). Second, borrowing increases when consumption is conspicuous. More critically, this increase in loan-taking is driven by those at the bottom of the income distribution. Third, in the presence of conspicuous consumption, access to finance exacerbates inequality. The results point to a vicious cycle of inequality and costly borrowing.

Keywords: Inequality, Socioeconomic Status, Conspicuous Consumption, Veblen Goods, Access to Finance

JEL Classification: G4, C92, D14

Suggested Citation

Banuri, Sheheryar and Nguyen, Ha, Borrowing to Keep Up (With the Joneses): Inequality, Debt, and Conspicuous Consumption (September 30, 2020). Available at SSRN: https://ssrn.com/abstract=3721084 or http://dx.doi.org/10.2139/ssrn.3721084

Sheheryar Banuri (Contact Author)

University of East Anglia (UEA) - School of Economic and Social Studies ( email )

Norwich, Norfolk NR4 7TJ
United Kingdom
+441603591246 (Phone)

HOME PAGE: http://https://www.uea.ac.uk/economics/people/profile/s-banuri

University of East Anglia (UEA) - Centre for Behavioural and Experimental Social Science (CBESS) ( email )

United Kingdom
+441603591246 (Phone)

Ha Nguyen

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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