Does inequality affect the consumption patterns of the poor? – The role of “status seeking” behaviour

Marjit, Sugata and Santra, Sattwik and Hati, Koushik Kumar (2014): Does inequality affect the consumption patterns of the poor? – The role of “status seeking” behaviour.

Abstract

We consider a situation where the relatively ‘poor’ are concerned about their relative income status with respect to a relevant reference group. Such a concern is explicitly introduced in a utility function to study the consumption and saving behavior of the poor in terms of a static and dynamic model. The static model points toward a possible conflict between income based and nutrition-based measure of poverty. The dynamic model exhibits the possibility of a higher rate of accumulation coupled with an inadequate nutritional intake, relative to a situation where there is no such concern for status. Thus, growth with malnutrition may also imply a conflict between different measures of poverty. Both the models point toward a direct and negative relationship between inequality and share of nutritional consumption as reflected in the consumption of food. Finally the paper looks at the empirical relationship between inequality and consumption across districts within states of India. The hypotheses that inequality impacts consumption patterns via status effect cannot be rejected. In fact the impact seems to be significant across a number of the Indian states.

• Item Type: MPRA Paper
• Language: English
• Keywords: Status; Consumption pattern; Inequality; Poverty; Growth
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C51 - Model Construction and Estimation; D - Microeconomics > D1 - Household Behavior and Family Economics; D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis; O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O40 - General

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