SAVINGS AND EMULATION: COULD THE U.S. SAVINGS PARADOX BE EXPLAINED BY AN ARMS RACE TO CONSUME?
Abstract (Summary)This paper builds on a minority view that consumer theory should include social variables rather than omit them. Using the theories first proposed by Thorstein Veblen and James Duesenberry this study analyzes the role which emulation plays in the U.S. Savings Paradox. At the micro level, an individual's amount of savings was estimated with the 2004 Survey of Consumer Finances. By using consumer debt as the proxy for emulation, the results find that changes in individual and aggregate savings can be explained by emulative consumption. Furthermore, the consumption externalities from emulation were shown to granger cause income inequality, which in turn granger caused the personal savings rate. The results confirm the minority view that consumption behavior is dependent on others. It appears that the U.S. Savings Paradox is the result of increased emulative consumption. For that reason, consumer theory needs can longer omit relevant social variables.
School Location:USA - Ohio
Source Type:Master's Thesis
Date of Publication:01/01/2009