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An assessment of the marginal propensity to consume in Italy in the post-Covid recovery

Author

Listed:
  • Gaetano Basso

    (Bank of Italy)

  • Francesca Carta

    (Bank of Italy)

  • Concetta Rondinelli

    (Bank of Italy)

  • Federico Tullio

    (Bank of Italy)

  • Francesca Zanichelli

    (Bank of Italy)

Abstract

We investigate the decoupling between consumption and income observed in the aftermath of the COVID-19 crisis, focusing on the role of improved labour market conditions. We first estimate differences in households' marginal propensities to consume (MPCs) applying a standard empirical framework to the 2016 and 2022 waves of Banca d'Italia's Survey on Household Income and Wealth, which we treat as representing the pre- and post-pandemic periods. We then assess the contribution of labour market dynamics to changes in the aggregate MPC using an Oaxaca–Blinder-type decomposition method. Finally, combining these estimates with data from Istat’s Labour Force Survey, we evaluate the role of labour market developments in shaping the evolution of the aggregate MPC through 2024. Our results indicate that MPCs declined across households, on average, and that recent employment growth was concentrated among groups with relatively low MPCs, exerting significant downward pressure on the aggregate MPC.

Suggested Citation

  • Gaetano Basso & Francesca Carta & Concetta Rondinelli & Federico Tullio & Francesca Zanichelli, 2026. "An assessment of the marginal propensity to consume in Italy in the post-Covid recovery," Questioni di Economia e Finanza (Occasional Papers) 1034, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_1034_26
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    Keywords

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    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure

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