Trickle Down Spending: The Role of Income Inequality on Gift Spending Decisions

Abstract

Income inequality, or how much money one consumer earns relative to another, may affect sympathy and gift spending decisions. Earning a relatively higher-income compared to another consumer increases the amount given as a real gift for a relatively lower-income recipient (study 1). The effect is driven by heightened spending on relatively lower earners (study 2) and is mediated by situational sympathy for the lower-income recipients, leading to increased reported spending on gifts (study 3). Using the recipients’ earning effort to manipulate situational sympathy moderates gift spending, demonstrating that a higher-income consumer will not spend more on a relatively lower-income recipient who works fewer hours than the giver (study 4). Consumers are more likely to reciprocate an expensive gift from a lower- versus a higher-income earner (study 5). This research is among the first to document how a consumer’s relative income to another affects financial decisions.