Beyond survival: how economic inequality reshapes consumption choices

The research, published in the Journal of the European Economic Association, provides compelling evidence that inequality influences consumption habits among the poor, shifting their spending toward luxury goods and away from necessities such as staple foods. This study highlights the role of social inclusion in the inequality debate, showing that the need to belong shapes consumer choices among the poor, redefining what counts as basic needs.

The need for social belonging

The authors analysed extensive consumption survey data from India over a significant period. They find that as the difference between social classes increases, poor households reduce their caloric consumption, increasing malnutrition. This happens despite stable income levels. In other words, when there is more economic disparity, households allocate more resources to ‘little luxuries’ associated with social inclusion and status, such as dairy products or processed foods, often at the expense of nutritional essentials like cereals, vegetables, and other primary nutrition sources. 

The findings suggest that upward economic comparisons play a significant role in shaping what individuals perceive as necessary. Lower income households may purchase luxuries as a means to elevate their social standing. Interestingly, over the last few decades, calorie consumption among the entire Indian population has decreased, despite economic growth. This phenomenon, known as the caloric consumption puzzle, is likely explained by Bellet and Colson-Sihra’s findings: as poorer households prioritise luxury goods over essential nutrition, their caloric intake declines, even when income remains stable. Accounting for this points to a redefinition of basic needs in societies with rising levels of inequality.

Rethinking poverty alleviation

The study underscores the need for policymakers to consider behavioural economic factors when designing poverty alleviation programmes. Traditional welfare measures often assume that economic growth naturally improves access to basic nutrition. However, if rising inequality shifts spending priorities towards social inclusion rather than necessities, poverty reduction efforts may be less effective.

According to Bellet and Colson-Sihra, inequality does not just reflect a wealth gap but actively shapes consumption decisions among the poor. To address this, welfare policies should account for the social and psychological pressures influencing spending behaviour. These insights extend beyond India, raising critical questions about how inequality impacts consumption patterns in both developing and developed economies.