Development and Underdevelopment in the History of Economic Thought

An empirical test of the irreversibility of consumption in the US

Cantaro Claudio, Roma Tre University

The determinants and trends in consumption expenditures have been the subject of empirical analyses since the dawn of statistical applications to macroeconomic problems. Within this literature, a characteristic began to appear from the very first analyses, namely the asymmetry of consumption with respect to changes in disposable income. In particular, the irreversibility of consumer spending, the tendency - in the presence of an income reduction - of individuals and the community not to reduce the consumption standards acquired over time, is a well-known property in the economic literature and accepted by different theoretical paradigms. One of the strongest theoretical explanations derives from the contributions of Thorstein Veblen, who introduced the concept of conspicuous consumption, and the institutional school, in which the irreducibility is traced back to the social relevance of consumption spending and in the resulting acquisition of peculiar spending habits. Little, if any, empirical evidence has been provided to this property - especially with respect to the above-mentioned theoretical background. The present article aims to empirically verify, by means of a SVAR methodology, the asymmetry of consumption, with reference to the United States of America from the post-war period to the present day. The results presented confirm the theoretical hypothesis and, at the same time, provide additional insights into the income-consumption relationship following the Great Recession.

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Keywords: consumption asymmetry, conspicuous consumption, Veblen, SVAR, impulse response functions.