Lagging behind the Joneses: Relative Deprivation and Household Consumption in Rural China

Based on the Chinese Family Panel Studies (CFPS) 2010–2018, this article investigates how relative deprivation influences household consumption in rural China. High-dimensional fixed-effects (HDFE), the instrumental variable (IV), and causal mediation analysis (CMA) are leveraged to estimate the causal effect and mechanisms. Results show that relative deprivation reduces survival-oriented consumption of food, development-oriented consumption of transportation, telecommunication, and education, as well as enjoyment-oriented of durable goods, and increases survival-oriented consumption of residence and development-oriented consumption of healthcare and medical services. Mechanism analysis indicates that relative deprivation decreases household consumption through the anticipated effect and increases it through a cognitive trap effect. On the whole, the anticipated effect prevails over the cognitive trap effect.