Consuming beyond means: debt trap of conspicuous consumption in an emerging economy

Abstract

With high prevalence of conspicuous consumption in low-income emerging economies like India, we argue that households in these economies resort to debts to finance their conspicuous consumption. Using nationally representative household panel data from Indian Human Development Surveys, we provide evidence that an increase in conspicuous consumption results in higher household debt and more number of loans, using multiple empirical strategies. We further illustrate that this effect on household debt i) is higher for rural households, and ii) reduces with higher education. We contribute to the literature on conspicuous consumption and its unfavorable consequences in emerging economies.