Holiday gift giving is in retreat in the US, it was demoted as an "inferior good"

Holiday gift giving in retreat. Joel Waldfogel. Economics Letters, December 12 2022, 110952. https://doi.org/10.1016/j.econlet.2022.110952

Abstract: Using US cross-section data, holiday gift giving is a normal good whose income elasticity of demand is about 0.5. As income rose 1914–2000, aggregate holiday gift expenditure grew as well. Since 2000, however, holiday giving has fallen in real terms as income has continued to rise. While gift giving remains normal in household cross sections, it behaves like an inferior good in the post-2000 national time series.

Introduction

Since Engel (1895), economists have classified goods with positive income effects as “normal” and those with negative income effects are “inferior”. These attributes are not inherent: As economies develop, the roles of particular goods can change. For example, some studies show that rice in Asia and beer in Germany have evolved from normal to inferior goods over time (Ito et al., 1989, Volland, 2012). What sort of a good is holiday gift giving in the US, and how has it changed over time?

I first document the relationship between household income and holiday gift giving implicit in cross-sectional Gallup survey data, confirming that holiday gift giving is a normal good with an income elasticity of roughly 0.5. I then examine a century’s data on per capita income and holiday gift giving (inferred from the December bump in retail sales). I show that holiday gift giving rose with income until 2000 and has since fallen in real terms even as income has continued to grow. Although gift giving is normal in cross sections of US households, it behaves like an inferior good in the national time series since 2000.1