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The spirit of capitalism among the income classes
Author(s) -
Smoluk H.J.,
Voyer John
Publication year - 2014
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2013.05.006
Subject(s) - capitalism , consumption (sociology) , economics , context (archaeology) , consumption function , asset (computer security) , cointegration , capital (architecture) , microeconomics , econometrics , sociology , law , social science , history , paleontology , computer security , archaeology , production (economics) , computer science , biology , politics , political science
This paper tests the consumption‐based capital asset model within the context of the spirit of capitalism. The spirit of capitalism asserts that consumers gain utility not just from consumption of goods and services, but also from the social status obtained from wealth. We examine two asset pricing models developed by Bakshi and Chen (1996) that employ wealth in the utility function, for households sorted by income quintiles. In the first model, households obtain utility from both consumption and the social status that comes from their own wealth. In the second model, households gain utility from both consumption and the social status obtained from their own wealth relative to the wealth of other peer households. Our results indicate that both models are inconsistent with the data regardless of income. However, using cointegration methods as a diagnostic tool, we find that the data are “loosely” consistent with the spirit of capitalism, at least for the upper income quintiles.