Middle-class households living in states with more rich people spend more, report more financial distress and are more likely to go bankrupt, a paper shows.
Citing "growing local inequality," the researchers found that "middle-income households consume a larger share of their current income" in the face of increased income and consumption on the part of more-affluent Americans.
Since the early 1980s, the paper says, "middle-income households would have saved between 2.6% and 3.2% more by the mid-2000s had incomes at the top grown at the same rate as median income."
The researchers suggest that middle-class Americans who live around richer people might be exposed to more pricey goods and might also be struggling to keep up with the Joneses. Higher housing prices in such markets could play a role too, they said.
"Trickle-Down Consumption," Marianne Bertrand and Adair Morse, National Bureau of Economic Research Working Paper 18883 (March)
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