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Do capital gains affect consumption? Estimates of wealth effects from Italian householdsÂ’ behavior

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  • Luigi Guiso

    ()
    (Università degli Studi di Sassari)

  • Monica Paiella

    ()
    (Bank of Italy)

  • Ignazio Visco

    ()
    (Bank of Italy)

Abstract

We use detailed data on housing prices in Italy available for a large number of years and with a fine geographical breakdown to compute capital gains and losses on the most widespread asset among consumers, housing, and inquire whether changes in housing values affect consumption. We find that consumer expenditures do react to capital gains, with a marginal propensity to consume out of real value changes of housing wealth of about 0.02. Reactions are different across types of consumers: while homeowners increase consumption when house prices increase, with a marginal propensity of about 0.035, the rentersÂ’ response to the higher house cost tends to be that of increased savings. For the owners of listed stocks the response to capital gains is difficult to estimate with statistical precision, even if, for the limited sample of owners of these assets, its negative sign may be indicative of prevailing substitution over income effects.

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Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 555.

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Date of creation: Jun 2005
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Handle: RePEc:bdi:wptemi:td_555_05

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Keywords: wealth effects; consumption; housing; stock ownership;

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Citations

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Cited by:
  1. Arrondel, L. & Savignac, F. & Tracol, K., 2011. "Wealth Effects on Consumption Plans: French Households in the Crisis," Working papers 344, Banque de France.
  2. Ricardo M. Sousa, 2009. "Wealth Effetcs on Consumption: Evidence from the euro area," NIPE Working Papers 12/2009, NIPE - Universidade do Minho.
  3. Victor Chernozhukov & Roberto Rigobon & Thomas Stoker, 2009. "Set identification with Tobin regressors," CeMMAP working papers CWP12/09, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. Antonio Bassanetti & Concetta Rondinelli, 2013. "Italian households’ opinions on the difficulty of saving," Questioni di Economia e Finanza (Occasional Papers) 147, Bank of Italy, Economic Research and International Relations Area.
  5. R. Calcagno & E. Fornero & M. Rossi, 2009. "The Effect of House Prices on Household Consumption in Italy," The Journal of Real Estate Finance and Economics, Springer, vol. 39(3), pages 284-300, October.
  6. Luisa Farinha, 2008. "Wealth effects on consumption in Portugal: a microeconometric approach," Economic Bulletin and Financial Stability Report Articles, Banco de Portugal, Economics and Research Department.
  7. Matteo Bugamelli & Alfonso Rosolia, 2006. "Productivity and foreign competition," Temi di discussione (Economic working papers) 578, Bank of Italy, Economic Research and International Relations Area.
  8. Claudia Biancotti & Giovanni D'Alessio, 2007. "The use of micro-level data from the Bank of Italy's survey of household income and wealth: a focus on household finance," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Measuring the financial position of the household sector", Basel, 30-31 August 2006 - Volume 2, volume 26, pages 342-346 Bank for International Settlements.
  9. Andersson, Magnus & D'Agostino, Antonello, 2008. "Are sectoral stock prices useful for predicting euro area GDP?," Research Technical Papers 2/RT/08, Central Bank of Ireland.
  10. Victor Chernozhukov & Roberto Rigobon & Thomas M. Stoker, 2010. "Set identification and sensitivity analysis with Tobin regressors," Quantitative Economics, Econometric Society, vol. 1(2), pages 255-277, November.
  11. Vittorio Peretti & Rangan Gupta & Roula Inglesi-Lotz, 2012. "Do House Prices Impact Consumption and Interest Rate in South Africa? Evidence from a Time-Varying Vector Autoregressive Model," Working Papers 201216, University of Pretoria, Department of Economics.
  12. Eva Sierminska & Yelena Takhtamanova, 2007. "Disentangling the wealth effect: some international evidence," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan19.

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