There is an ongoing debate about how changes in the income distribution may influence
the household spending on visible spending (see, e.g., Hopkins and Kornienko,
2004, 2009). Using South African household spending data, we empirically examine
how the share of group members who posses a similar income level to a given household
is related to its spending on visible goods, such as jewelry and clothes. Our
results suggest that an increase in this ‘local income share’ is positively associated
with household spending on visible goods which are used to signal status. This
result suggests that, while increases in mean group income are associated with a
reduction in visible spending, a reduction in income inequality is associated with
increases in visible spending. Ergo, policies that promote greater income equality
may in fact be also fostering spending on status signalling. At the same time, this
effect appears to be nonlinear such that when the local income share is large, additional
increases in the local income share appear to have only a small or no effect
on visible goods spending.