  The nexus between debt and inequality has attracted considerable scholarly
attention in the wake of the global financial crisis. One prominent candidate
to explain the striking co-evolution of income inequality and private debt in
this period has been the theory of upward-looking consumption externalities
leading to expenditure cascades. We propose a parsimonious model of
upward-looking consumption at the micro level mediated by perception networks
with empirically plausible topologies. This allows us to make sense of the
ambiguous empirical literature on the relevance of this channel. Up to our
knowledge, our approach is the first to make the reference group to which
conspicuous consumption relates explicit. Our model, based purely on current
income, replicates the major stylised facts regarding micro consumption
behaviour and is thus observationally equivalent to the workhorse permanent
income hypothesis, without facing its dual problem of `excess smoothness' and
`excess sensitivity'. We also demonstrate that the network topology and
segregation has a significant effect on consumption patterns which has so far
been neglected.
