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Working Paper
Does inequality cause financial distress? Evidence from lottery winners and neighboring bankruptcies
Revised Oct 2016. We test the hypothesis that income inequality causes financial distress. To identify the effect of income inequality, we examine lottery prizes of random dollar magnitudes in the context of very small neighborhoods (13 households on average). We find that a C$1,000 increase in the lottery prize causes a 2.4% rise in subsequent bankruptcies among the winners? close neighbors. We also provide evidence of conspicuous consumption as a mechanism for this causal relationship. The size of lottery prizes increases the value of visible assets (houses, cars, motorcycles), but not ...
Working Paper
Conspicuous Consumption: Vehicle Purchases by Non-Prime Consumers
Consumers with higher income often spend more on luxury goods. As a result, lower-income consumers who seek to increase their perceived income and social status may be motivated to purchase conspicuous luxury goods. Lower-income consumers may also desire to emulate the visible consumption displayed by their wealthier peers. Using a unique vehicle financing dataset, we find that consumers with lower credit scores value vehicle brand prestige more than average consumers. The stronger preferences for prestige lead non-prime consumers to purchase more expensive vehicles than they otherwise would ...