Working Paper: NBER ID: w13392
Authors: Kerwin Kofi Charles; Erik Hurst; Nikolai Roussanov
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. We demonstrate that these differences exist among virtually all sub-populations, that they are relatively constant over time, and that they are economically large. While 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 to reflect a household's economic position relative to a reference group. Using merged data on race and state level income, we demonstrate that a key prediction of our model -- that visible consumption should be declining in mean reference group income -- is strongly borne out in the data separately 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. We conclude with an assessment of the role of conspicuous consumption in explaining lower spending by racial minorities on items likes health and education, as well as their lower rates of wealth accumulation.
Keywords: Conspicuous Consumption; Race; Visible Goods; Economic Status
JEL Codes: D12; D83; D91; J15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| race (J15) | visible consumption (E21) |
| reference group income (D31) | visible consumption (E21) |
| visible consumption (E21) | spending on education and health (H75) |
| reference group income characteristics (D31) | racial differences in visible consumption (F61) |