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Abstract

It has been widely documented that the poor spend a significant proportion of their income on gifts even at the expense of basic consumption. We test three competing explanations to this phenomenon, peer effect, status concern, and risk-pooling, based on a census-type primary household survey in three natural villages in rural China and detailed household records of gifts received in major occasions. The gift giving behavior is largely influenced by peers in the reference groups. Status concern is another key motive for “keeping up with the Joneses” in extending gifts. In particular, the poor with sons spend more on gift giving in proportion to their income than their rich counterparts in response to the tightening marriage market. In contrast, risk pooling does not seem to be a key driver of the observed gift giving patterns. Large windfall income to a large extent triggers the escalation of gift giving behavior.

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