Keeping up with the Joneses: Analyzing the effect of income inequality on consumer borrowing

Journal Article (Journal Article)

Household debt relative to disposable income increased from 60% in 1980 to 104% at the end of 2003. 'Buying on credit' has become so popular that an increasing number of firms generate more profit from financing than from selling their products. In this paper, we show that rising income inequality has substantially contributed to increased consumer borrowing. Income inequality affects all components of total household debt, but the impact is strongest on non-revolving debt (installment loans), which is used to finance the purchase of consumer durables. We argue and provide evidence that the income inequality effect on consumer borrowing is a result of conspicuous consumption. Rising income inequality has forced households with smaller income gains to use debt to keep up their consumption level relative to households with larger income gains. © Springer Science + Business Media, Inc. 2005.

Full Text

Duke Authors

Cited Authors

  • Christen, M; Morgan, RM

Published Date

  • June 1, 2005

Published In

Volume / Issue

  • 3 / 2

Start / End Page

  • 145 - 173

International Standard Serial Number (ISSN)

  • 1570-7156

Digital Object Identifier (DOI)

  • 10.1007/s11129-005-0351-1

Citation Source

  • Scopus