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Do wealth inequalities have an impact on consumption?

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  • Frédérique Savignac

Abstract

On average, wealth effects on consumption are weak in France. However,this average effect may hide differences in behaviour. This issue of Rue de la Banque looks at the effects of wealth on consumption,and shows that they vary according to the size and composition of households’ assets. In the event of an unexpected increase in wealth,poorer households tend to consume a larger share of this surplus.For these households, the propensity to consume is 11 cents per euro of additional wealth, whereas for wealthier households it is almost nil. These differences could be explained by the existence of stronger liquidity constraints on poorer households. An increase in the price of equity holdings tends to raise overall consumption inequalities.However, our simulation shows that an unexpected wealth shock would have a relatively limited effect on consumption inequalities.

Suggested Citation

  • Frédérique Savignac, 2017. "Do wealth inequalities have an impact on consumption?," Rue de la Banque, Banque de France, issue 42, april..
  • Handle: RePEc:bfr:rueban:2017:42
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    File URL: https://www.banque-france.fr/sites/default/files/medias/documents/rue-de-la-banque_42_2017-04-en.pdf
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    References listed on IDEAS

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    1. Carroll, Christopher D & Kimball, Miles S, 1996. "On the Concavity of the Consumption Function," Econometrica, Econometric Society, vol. 64(4), pages 981-992, July.
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    3. Luc Arrondel & Laura Bartiloro & Pirmin Fessler & Peter Lindner & Thomas Y. Mathä & Cristiana Rampazzi & Frédérique Savignac & Tobias Schmidt & Martin Schürz & Philip Vermeulen, 2016. "How Do Households Allocate Their Assets? Stylized Facts from the Eurosystem Household Finance and Consumption Survey," International Journal of Central Banking, International Journal of Central Banking, vol. 12(2), pages 129-220, June.
    4. Valerie Chauvin & Olivier Damette, 2010. "Effets de richesse : le cas français," Économie et Statistique, Programme National Persée, vol. 438(1), pages 111-140.
    5. Savignac, Frédérique & Arrondel, Luc & Lamarche, Pierre, 2015. "Wealth effects on consumption across the wealth distribution: empirical evidence," Working Paper Series 1817, European Central Bank.
    6. Luc Arrondel & Pierre Lamarche & Frédérique Savignac, 2015. "Wealth Effects on Consumption across the Wealth Distribution: Empirical Evidence," Working Papers halshs-01168660, HAL.
    7. Slacalek Jiri, 2009. "What Drives Personal Consumption? The Role of Housing and Financial Wealth," The B.E. Journal of Macroeconomics, De Gruyter, vol. 9(1), pages 1-37, October.
    8. Sydney Ludvigson & Charles Steindel & Martin Lettau, 2002. "Monetary policy transmission through the consumption-wealth channel," Economic Policy Review, Federal Reserve Bank of New York, issue May, pages 117-133.
    9. Richard Disney & John Gathergood & Andrew Henley, 2010. "House Price Shocks, Negative Equity, and Household Consumption in the United Kingdom," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1179-1207, December.
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