Visible inequality, status competition, and conspicuous consumption: evidence from rural India

摘要

If individuals care about their status, defined as their rank in the distribution of conspicuous consumption, a fall in the level of visible inequality is likely to cause them to spend more on conspicuous goods due to increased status competition. I exam-ine this hypothesis using micro data from rural India. Employing an identification strategy based on instrumental variables, I find robust evidence that visible inequality has a negative and significant impact on household conspicuous consumption. Further, my results indicate that the increase in conspicuous expenditure in response to a fall in visible inequality is diverted from education spending which is perceived to have positive social externalities. This suggests that traditional re-distributive policies that seek to reduce the level of economic inequality, by encouraging 'wasteful' spending of households, might have adverse welfare consequences.