Jin, Ye and Wu, Binzhen and Li, Hongbin (2010): Income Inequality, Status Seeking, and Consumption.
Download (191kB) | Preview
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.
|Item Type:||MPRA Paper|
|Original Title:||Income Inequality, Status Seeking, and Consumption|
|English Title:||Income Inequality, Status Seeking, and Consumption|
|Keywords:||income inequality; social status; consumption and savings; status seeking; education investment|
|Subjects:||D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
D - Microeconomics > D9 - Intertemporal Choice and Growth > D91 - Intertemporal Consumer Choice; Life Cycle Models and Saving
O - Economic Development, Technological Change, and Growth > O1 - Economic Development > O16 - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
E - Macroeconomics and Monetary Economics > E2 - Macroeconomics: Consumption, Saving, Production, Employment, and Investment > E21 - Consumption; Saving; Wealth
|Depositing User:||Binzhen Wu|
|Date Deposited:||11. May 2010 19:03|
|Last Modified:||20. Feb 2013 13:08|
Alesina A. and R. Perotti, 1996, Income distribution, political instability, and investment, European Economic Review, 40: 1203- 1228
Bakshi, G. S., and Zhiwu C. 1996, The Spirit of Capitalism and Stock-Market Prices, American Economic Review 86: 133 – 157.
Clark, A. and Oswald, A. 1996, Satisfaction and Comparison Income, Journal of Public Economics, 61:359-381.
Chamon M. and E. Prasad, 2008, Why are saving rates of urban households rising? NBER Working Paper 14546
Cole H., G. Mailath, A Postlewaite , 1992, Social Norms, Savings Behavior, and Growth, The Journal of Political Economy, 100:1092-1125
Coleman, J., 1990, Foundations of social theory, Harvard University Press, Cambridge, MA.
Corneo, G., and O., Jeanne, 1998, Social organization, status and savings behavior, Journal of Public Economics, 70: 37–51.
Corneo, G., and O., Jeanne, 1999, Social organization in an endogenous growth model, International economic review, 70: 37–51.
Corneo G. and O. Jeanne, 2001, Status, the Distribution of Wealth, and Growth, The Scandinavian Journal of Economics, 103: 283-293
Cowell, F.A. 1989, Sampling variance and decomposable inequality measures, Journal of Econometrics, 42: 27-41.
Dynan, K. E., J. Skinner, and S. P. Zeldes, 2004, Do the Rich Save More? Journal of Political Economy, 112: 397-444
Fershtman C., K. M. Murphy, and Y. Weiss Source, 1996, Social Status, Education, and Growth, The Journal of Political Economy, 104: 108-132
Futagamia K., and A. Shibatab, 1998, Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth, Journal of Economic Behavior & Organization, 36:109-126
Horioka , C. Y. and Wan , J . , 2006, The Determinants of Household Saving in China : A Dynamic Panel Analysis of Provincial Data ,NBER Working Papers 12723.
Kraay, A. ,2000, Household Saving in China, World Bank Economic Review, 14: 545—557
Gong, Liutang, and Heng-fu Zou, 2001. Money, Social Status, and Capital Accumulation in a Cash-in-Advance Model. Journal of Money Credit and Banking 33: 284-293.
Kuijs, Louis, 2006, How Will China’s Saving-Investment Balance Evolve? World Bank Policy Research Working Paper #3958.
Li H. and Y. Zhu, 2006, Income, income inequality, and health: Evidence from China, Journal of Comparative Economics, 34: 668–693
Long, N., and K., Shimomura, 2004, Relative wealth, status-seeking, and catching-up, Journal of Economic Behavior & Organization, 53: 529–542
Menchik P. and M. David, 1983, Income Distribution, Lifetime Savings, and Bequests, The American Economic Review, 73: 672-690
Meng, Xin, 2003. "Unemployment, consumption smoothing, and precautionary saving in urban China," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 465-485, September.
Modigliani F. and S. Cao, 2004, The Chinese Saving Puzzle and the Life-Cycle Hypothesis, Journal of Economic Literature, 42: 145-170
Musgrove, P., 1980, Income Distribution and the Aggregate Consumption Function, The Journal of Political Economy, 88: 504-525
Neumark, D. and Postlewaite, A. 1998, Relative Income Concerns and the Rise in Married Women's Employment, Journal of Public Economics, 70: 157-183.
Pham, T., 2005, Economic growth and status-seeking through personal wealth, European Journal of Political Economy, 21: 407-427.
Schmidt-Hebbel K. and L. Serven, 2000, Does income inequality raise aggregate saving?, Journal of Development Economics, 61: 417–446
Smith D., 2001, International evidence on how income inequality and credit market imperfections affect private saving rates, Journal of Development Economics, 64: 103–127
Stoker , T., 1986, Simple Tests of Distributional Effects on Macroeconomic Equations, The Journal of Political Economy, 94: 763-795
Weber, M., 1922, Economy and Society. Translated and reprinted, University of California Press, Berkeley, 1978.
Wei S. and X. Zhang, 2009, The competitive saving motive, Evident from rising sex ratio and savings rate in China, NBER working paper.
Weiss, Y. and C. Fershtman, 1998, Social status and economic performance: A survey, European Economic Review, 42: 801-820
Wen, Yi, 2009. "Saving and growth under borrowing constraints explaining the "high saving rate" puzzle," Working Papers 2009-045, Federal Reserve Bank of St. Louis.
World Bank, 2005, World development report 2006: equity and development, Washington, DC: World Bank.
Lu Xueyi, 2002, The report on social strata in contemporary China, Social Sciences Academic Press, Beijing, China. (In Chinese)