Finance Papers

Document Type

Journal Article

Date of this Version

2009

Publication Source

The Quarterly Journal of Economics

Volume

124

Issue

2

Start Page

425

Last Page

467

DOI

10.1162/qjec.2009.124.2.425

Abstract

Using nationally representative data on consumption, we show that Blacks and Hispanics devote larger shares of their expenditure bundles to visible goods (clothing, jewelry, and cars) than do comparable Whites. These differences exist among virtually all subpopulations, are relatively constant over time, and are economically large. Although racial differences in utility preference parameters might account for a portion of these consumption differences, we emphasize instead a model of status seeking in which conspicuous consumption is used as a costly indicator of a household's economic position. Using merged data on race- and state-level income, we demonstrate that a key prediction of the status-signaling model—that visible consumption should be declining in reference group income—is strongly borne out in the data for each racial group. Moreover, we show that accounting for differences in reference group income characteristics explains most of the racial difference in visible consumption.

Copyright/Permission Statement

This is a pre-copyedited, author-produced PDF of an article accepted for publication in The Quarterly Journal of Economics following peer review. The version of record is available online at: http://dx.doi.org/10.1162/qjec.2009.124.2.425.

Share

COinS
 

Date Posted: 27 November 2017