Abstract
The impact of income inequality on conspicuous consumption has been a topic of much discussion, but little empirical examination in the emerging market context. In this paper, using data from the India Human Development Survey (2004–2005) and employing simple regression framework, we examine the effect of income inequality on conspicuous consumption in Indian households. We also empirically examine whether the relationship between inequality and conspicuous consumption changes with a household’s relative wealth status. Drawing on existing literature, we hypothesize that low-income and rural groups are likely to engage in higher conspicuous consumption due to the reduced attractiveness of alternate mechanisms to signal status (like professional titles and educational qualifications) as well as the absence of well-functioning financial institutions that might inhibit “status seeking” savings. Consistent with this hypothesis, our results suggest that increased income inequality is associated with an increased spending on conspicuous consumption as a share of total spending, with the associated response being higher for relatively low-income households and those living in rural settings. Our findings have significant policy and marketing implications in emerging markets like India.
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Notes
Broadening the debate on the consequences of inequality, Ordabayeva and Chandon (2011) argue that a consumer’s incentive for conspicuous consumption could depend not only on the “possession gap” but also on the magnitude of the resulting “position gain” in social status. Supporting their argument with experimental evidence, the authors theorize that consumers at the lower end of the income distribution may indulge in greater conspicuous consumption at lower levels of inequality, as doing so allows them to surpass a higher number of people and signal a higher social position (since consumers are stacked closer together in a more equitable income distribution). The idea of a position gain is a relatively recent theoretical contribution that we believe deserves greater empirical attention. However, as we elaborate later on, we don’t find much support for it in the context of an emerging economy like India.
We also test sensitivity of our results using other measures of inequality—coefficient of variation of income and Gini coefficient of consumption inequality—and the pattern of results are similar (available upon request).
We conduct two more tests to check the robustness of our results. In the first test, we estimate regression coefficients for the two groups (urban and rural) separately with all control variables. In the second test, we again estimate two sets of regression coefficients (for urban and rural groups), but this time we use two group level controls—mean income of the state is replaced with mean income of the group (urban or rural) within the state and GDP per capita is replaced by per capita expenditure at the group level (urban and rural) within the state (source: Chaudhuri and Gupta 2009). In both these tests, the coefficient of income inequality for the rural model is found to be higher than that of the urban model as expected.
We would like to thank an anonymous reviewer for highlighting this potential issue.
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Jaikumar, S., Sarin, A. Conspicuous consumption and income inequality in an emerging economy: evidence from India. Mark Lett 26, 279–292 (2015). https://doi.org/10.1007/s11002-015-9350-5
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DOI: https://doi.org/10.1007/s11002-015-9350-5