Conspicuous consumption and income inequality in an emerging economy: evidence from India

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.