Conspicuous consumption and political regimes: Evidence from East and West Germany

- This paper shows the influence of political regimes on individual preferences.
- We treat the separation of Germany as a natural experiment.
- We use nationally representative data on consumption.
- We focus on the relative importance of conspicuous consumption expenditures.
- Conspicuous consumption is higher in the East (even 18 years after reunification).

This paper investigates the influence of political regimes on the relative importance of conspicuous consumption. We use the division of Germany into the communist GDR and the democratic FRG and its reunification in 1990 as a natural experiment. Relying on household data that are representative for Germany, our empirical results strongly indicate that conspicuous consumption is relatively more important in East Germany. Significantly, although we find some convergence, a considerable gap in conspicuous consumption expenditures remains even 18 years after the German reunification.