Socio-Economic Status, Savings and Income Inequality in Nigeria: The Behavioral Mechanism Approach

Document Type : Research Paper

Authors

Faculty of Social Sciences, Department of Economics, Oye-Ekiti Federal University, Oye, Nigeria

10.22059/ier.2023.338382.1007380

Abstract

This study examined the impacts of socioeconomic status and savings on income inequality, to verify the transitional changes in socioeconomic status and saving rate, which in turn may affect the level of income inequality in Nigeria. The study employed the Behavioral Mechanism Approach (BMA), incorporating the Structural Vector autoregressive (SVAR) technique, which uses impulse response function and variance error decomposition to trace the behaviors of the chosen variables over time. The empirical results show that peoples’ socioeconomic status negatively affected average income in the economy through their flair for conspicuous consumption. It also shows that socioeconomic status increases income inequality through a reduction in returns to capital and through changes in the levels of savings in the economy. The study recommends that the government may need to invest in behavioral changing policies such as education and enlightenment that can change conspicuous consumption. These can enhance income accumulation and alleviate inequality in the economy.

Keywords

Main Subjects


Acemoglu, D., & Robinson, J. A. (2015). Why Did the West Extend the Franchise? Democracy, Inequality, and Growth in Historical Perspective. The Quarterly Journal of Economics115(4), 1167-1199.
Agu, O. C., & Nyatanga, P. (2020). An Investigation into the Crude Oil Price Pass-Through to Economic Growth in Nigeria. Acta Universitatis Danubius. Œconomica16(1), 82-95.
Banerjee, A. V., & Duflo, E. (2007). Inequality and Growth: What Can the Data Say? Journal of Economic Growth8(3), 267-299.
Becker, H. S. (1971). Sociological Work. New Jersey: Transaction Publishers.
Bernanke, B. (2008). Alternative Explanation of the Money-Income Correlation. NBER Working Paper Series, 1842, 1–62.
Bewley, B. R., & Bland, J. M. (1977). Academic Performance and Social Factors Related to Cigarette Smoking by School Children. Journal of Epidemiology & Community Health31(1), 18-24.
Boppart, T. (2014). Structural Change and the Kaldor Facts in a Growth Model with Relative Price Effects and Non‐Gorman Preferences. Econometrica, 82, 2167-2196.
Buchanan, J. M., & Stubblebine, W. C. (1962). Externality (138-154). In Classic Papers in Natural Resource Economics. London: Palgrave Macmillan.
Bloch, F. (2004). Sequential Formation of Coalitions in Games with Externalities and Fixed Payoff Division. Games and Economic Behavior14(1), 90-123.
Caselli, F., & Feyrer, J. (2007). The Marginal Product of Capital. The Quarterly Journal of Economics122(2), 535-568.
Caselli, F., & Ventura J. (2000). A Representative Consumer Theory of Distribution. American Economic Review, 90(4), 909-926.
Carroll, C. D., & Samwick, A. A. (1997). The Nature of Precautionary Wealth. Journal of Monetary Economics40(1), 41-71.
Clark, A. E., & Senik, C. (2010). Who compares to whom? The anatomy of Income Comparisons in Europe. The Economic Journal120(544), 573-594.
Clark, A. E., & Oswald, A. J. (1996). Satisfaction and Comparison Income. Journal of public Economics61(3), 359-381.
Dioikitopoulos, E. V., Turnovsky S. J., & Wendner, R (2019). Dynamic Status Effects, Savings, and Income Inequality. International Economic Review, 67(8), 234-246.
Dubey, R., Gunasekaran, A., Papadopoulos, T., Childe, S. J., Shibin, K. T., & Wamba, S. F. (2017). Sustainable Supply Chain Management: Framework and Further Research Directions. Journal of Cleaner Production142, 1119-1130.
Dupor, B., & Liu, B. (2003). Jealousy and Equilibrium Overconsumption. American Economic Review, 93(1), 423-428.
Duesenberry, J. (1949). Income, Saving, and the Theory of Consumer Behavior. Cambridge: Harvard University Press.
Dynan, K. E. (2004). Relative Wage Changes and Estimates of the Rate of Time Preference. Retrieved from Mimeo.
Elbourne, A. (2007). The UK Housing Market and the Monetary Policy Transmission Mechanism: An SVAR Approach. Journal of Housing Economics, 17(8), 65–87.
Fasanya, I., & Akinbowale, S. J. E. (2019). Modelling the Return and Volatility Spill overs of Crude Oil and Food Prices in Nigeria. European Journal of Social Sciences, 169(3), 186-205.
Frank, R. H. (1985). Choosing the Right Pond: Human Behavior and the Quest for Status. Oxford: Oxford University Press.
Ghosh, S., & Wendner, R. (2014). Positional Preferences, Endogenous Growth, and Optimal Income- and Consumption Taxation. Retrieved from https://ssrn.com/abstract=2532312
Goudie, A. S. (2018). Human Impact on the Natural Environment. New Jersey: John Wiley & Sons.
Heffetz, O. (2012). Who sees what? Demographics and the Visibility of Consumer Expenditures. Journal of Economic Psychology33(4), 801-818.
---------- (2011). Preferences for Status: Evidence and Economic Implications. Handbook of Social Economics, 1, 69-91.
Khemili, H., & Belloumi, M. (2018). Cointegration Relationship between Growth, Inequality and Poverty in Tunisia. International Journal of Applied Economics, Finance and Accounting, 2(1), 8-18.
Kuznets, S. (1955). Economic Growth and Income Inequality. The American Economic Review, 45(1), 1-28.
Loayza, N., Schmidt-Hebbel, K., & Servén, L. (2000). What Drives Private Saving Across the World? Review of Economics and Statistics82(2), 165-181.
Moav, O., & Neeman, Z. (2012). Saving Rates and Poverty: The Role of Conspicuous Consumption and Human Capital. The Economic Journal122(563), 933-956.
Micheletto, L. (2011). Optimal Non-Linear Redistributive Taxation and Public Good Provision in an Economy with Veblen Effects. Journal of Public Economic Theory, 13(1), 1-154.
Mordi, C. N., & Adebiyi, M. A. (2010). The Asymmetric Effects of Oil Price Shocks on Output and Prices in Nigeria Using a Structural VAR Model. Economic and Financial Review48(1), 1-32.
Ngalawa, H., & Viegi, N. (2011). Interaction of Formal and Informal Financial Markets in Quasi-Emerging Market Economies. Economic Modelling31, 614-624.
Omolade, A., & Ngalawa, H. (2018). Oil Price Movements, Exchange Rate and Nigerian Manufacturing Sector Growth: A Short-Run Analysis. Investment Management & Financial Innovations15(3), 329-342.
Omolade, A., Ngalawa, H., & Kutu, A. (2019). Crude Oil Price Shocks and Macroeconomic Performance in Africa’s Oil-Producing Countries. Cogent Economics & Finance7(1), 16-34.
Peersman, G., & Smets, F. (2009). The Monetary Transmission Mechanism in the EURO Area: More Evidence from VAR Analysis. European Central Bank Working Paper Series, 91, 1-37.
Piketty, T., & Zucman, G. (2014). Capital is back: Wealth-Income Ratios in Rich Countries 1700–2010. The Quarterly Journal of Economics129(3), 1255-1310.
Saez, E., & Zucman, G. (2016). Wealth Inequality in the United States since 1913: Evidence from Capitalized Income Tax Data. The Quarterly Journal of Economics131(2), 519-578.
Smith, J. P. (1759). Inheritances and Bequests. In J. P. Smith and R. J. Willis (Ed.), Wealth, Work, and Health: Innovations in Measurement in the Social Sciences. Ann Arbor: University of Michigan Press.
Strulik, H. (2012). Patience and Prosperity. Journal of Economic Theory147(1), 336-352.
The Week. (2017). Rising Inequality Biggest Threat to Global Economy, Says WEF. Retrieved from http://www.the week.co.uk/85823/ on 26/04/2020 what-is-inequality-and-within-it-rising
Vonnak, B. (2005). Estimating the Effect of Hungarian Monetary Policy within a Structural VAR Framework. MNB Working Papers, 2005/1, 1-43.
Veblen, T. (1889). The Theory of Leisure Class. New Jersey: Prentis House Publishers.
Weber, M. (1930). The Protestant Ethic and the Spirit of Capitalism. London: Dobson Publishers.
Wendner, R. (2010). Conspicuous Consumption and Generation Replacement in a Model of Perpetual Youth. Journal of Public Economics, 94(11-12), 1093-1107.
Wendner, R., & Goulder, L. H. (2008). Status Effects, Public Goods Provision, and Excess Burden. SSRN Electronic Journal, 92(10-11), 1968-1985.
World Bank. (2020). Poverty in the Third World Countries. Retrieved from https://www.worldbank.org/en/topic/poverty
Zou, H. F. (1994). The Spirit of Capitalism and Long-Run Growth. European Journal of Political Economy, 10(2), 279-293.