Visible inequality and the allocation of household spending: an empirical analysis from India

Abstract

Purpose The purpose of this paper is to examine how visible inequality affects household consumption choices in India, specifically the trade-off between essential food expenditure and conspicuous consumption. The aim is to identify whether rising inequality places a burden on households by pushing them toward status-driven spending at the expense of nutrition. Design/methodology/approach This study uses data from the latest Household Consumption Expenditure Surveys (HCES 2022–2023 and 2023–2024). Following Friehe and Mechtel (2014), conspicuous consumption is defined by mapping the relevant expenditure categories from the HCES data. Visible inequality is measured as the leave-one-out standard deviation of conspicuous consumption at the First Sampling Unit level. To address endogeneity, a two-stage least squares approach is used, using the Theil index of monthly per capita expenditure as an instrument. Regression models with district fixed effects and sampling weights are estimated for robustness. Findings The results of this study show that visible inequality has a positive and significant association with conspicuous consumption and a negative association with food consumption. Households allocate a larger share of their expenditure to conspicuous goods when inequality rises, while reducing spending on essential food items. The social pressures of status signaling may be one of the reasons that distort household consumption priorities. Research limitations/implications This study uses objective measures of inequality and visibility, but it cannot directly capture perception-based or psychological dimensions of status comparison. The data set also lacks detailed information on the frequency and visibility of specific conspicuous items. Future research can use perception-based surveys for further understanding of these mechanisms. Practical implications The findings of this study suggest that as inequality increases, households may prioritize status goods over essential consumption. This has important policy implications, as rising inequality can negatively affect nutritional well-being. Therefore, policymakers should consider inequality when designing policies to improve nutritional outcomes. Social implications By diverting spending from food to status goods, visible inequality may worsen nutritional outcomes. Understanding this association is important for policies aimed at improving welfare, reducing poverty traps and promoting equitable development. Originality/value To the best of the authors’ knowledge, this is among the first empirical studies in India using the latest nationally representative HCES data to examine the effect of visible inequality on household consumption trade-offs. This study provides robust econometric evidence on the role of social comparison in driving conspicuous consumption and highlights its consequences for food security and welfare.