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The Effect of Wealth on Consumption Expenditures: Cross Country and Cross Socio-Demographic Group Comparisons

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  • Eva Sierminska
  • Yelena Takhtamanova

Abstract

This study is a contribution to literature on the impact of wealth on consumption (the wealth effect). We assess within- and between-country differences in the housing and financial wealth effect and analyze these differences according to socio-demographic characteristics. Our interest in separating the wealth effect into two is motivated by increases in housing prices in many industrialized countries. The fact that many developed countries are undergoing demographic changes prompted us to consider the relationship between socio-demographic characteristics and wealth effects. Differences are found in the magnitudes of financial and housing wealth effects by age, gender, as well as family composition of the households in all three countries. This paper reports some of the first findings based on data from a new source, the Luxembourg Wealth Study (LWS), built within the larger Luxembourg Income Study (LIS). LWS is a database containing harmonized wealth micro-datasets from a number of industrialized countries. In our analysis we use data from three countries: Canada, Finland and Italy.

Suggested Citation

  • Eva Sierminska & Yelena Takhtamanova, 2008. "The Effect of Wealth on Consumption Expenditures: Cross Country and Cross Socio-Demographic Group Comparisons," Ekonomia journal, Faculty of Economic Sciences, University of Warsaw, vol. 20.
  • Handle: RePEc:eko:ekoeko:20_68
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    File URL: http://ekonomia.wne.uw.edu.pl/ekonomia/getFile/660
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    1. Case Karl E. & Quigley John M. & Shiller Robert J., 2005. "Comparing Wealth Effects: The Stock Market versus the Housing Market," The B.E. Journal of Macroeconomics, De Gruyter, vol. 5(1), pages 1-34, May.
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    4. Lise Pichette, 2004. "Are Wealth Effects Important for Canada," Bank of Canada Review, Bank of Canada, vol. 2004(Spring), pages 29-35.
    5. Luigi Guiso & Monica Paiella & Ignazio Visco, 2005. "Do capital gains affect consumption? Estimates of wealth effects from Italian households� behavior," Temi di discussione (Economic working papers) 555, Bank of Italy, Economic Research and International Relations Area.
    6. Steven F. Venti & David A. Wise, 2004. "Aging and Housing Equity: Another Look," NBER Chapters,in: Perspectives on the Economics of Aging, pages 127-180 National Bureau of Economic Research, Inc.
    7. Ludwig Alexander & Sløk Torsten, 2004. "The Relationship between Stock Prices, House Prices and Consumption in OECD Countries," The B.E. Journal of Macroeconomics, De Gruyter, vol. 4(1), pages 1-28, March.
    8. Shefrin, Hersh M & Thaler, Richard H, 1988. "The Behavioral Life-Cycle Hypothesis," Economic Inquiry, Western Economic Association International, vol. 26(4), pages 609-643, October.
    9. Eva Sierminska & Yelena Takhtamanova, 2007. "Disentangling the wealth effect: some international evidence," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue jan19.
    10. Ludwig, Alexander & Sløk, Torsten, 2004. "The relationship between stock prices, house prices and consumption in OECD," Sonderforschungsbereich 504 Publications 04-12, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    11. Michael Hurd & Susann Rohwedder, 2005. "Changes in Consumption and Activities at Retirement," DNB Working Papers 039, Netherlands Central Bank, Research Department.
    12. Buhmann, Brigitte, et al, 1988. "Equivalence Scales, Well-Being, Inequality, and Poverty: Sensitivity Estimates across Ten Countries Using the Luxembourg Income Study (LIS) Database," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 34(2), pages 115-142, June.
    13. Yash P. Mehra, 2001. "The wealth effect in empirical life-cycle aggregate consumption equations," Economic Quarterly, Federal Reserve Bank of Richmond, issue Spr, pages 45-67.
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    Cited by:

    1. Eva Sierminska & Yelena Takhtamanova, 2006. "Wealth Effects Out of Financial and Housing Wealth: Cross Country and Age Group Comparisons," LWS Working papers 4, LIS Cross-National Data Center in Luxembourg.
    2. Eva Sierminska & Yelena Takhtamanova, 2007. "Wealth effects out of financial and housing wealth: cross country and age group comparisons," Working Paper Series 2007-01, Federal Reserve Bank of San Francisco.

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