Relative income hypothesis

According to the relative income hypothesis put forward by the US economist James Duesenberry in 1949, household consumption is determined not only by income in the current period, but also by the highest income in the past.

In the event of a decline in income, households will therefore orient themselves towards the standard of living achieved in the past, which has a braking effect on the decline in consumption. According to Duesenberry, households behave asymmetrically in their consumption behavior in the case of income growth and income loss.

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