IDEAS home Printed from https://ideas.repec.org/p/bdi/opques/qef_1034_26.html

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
    as

    Download full text from publisher

    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2026-1034/QEF_1034_26.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Marta De Philippis, 2017. "The dynamics of the Italian labour force participation rate: determinants and implications for the employment and unemployment rate," Questioni di Economia e Finanza (Occasional Papers) 396, Bank of Italy, Economic Research and International Relations Area.
    2. Christopher D. Carroll, 1997. "Buffer-Stock Saving and the Life Cycle/Permanent Income Hypothesis," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(1), pages 1-55.
    3. Andrea Neri & Federico Tullio, 2022. "The role of household sentiments and expectations during the Covid-19 crisis: evidence from the special survey of Italian households," Politica economica, Società editrice il Mulino, issue 2, pages 157-188.
    4. Maximilian Propst, 2025. "(Im‐)Patient Social Classes and Their Marginal Propensity to Consume Out of Wealth," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 71(4), November.
    5. Y. G. Berger & R. Priam, 2016. "A simple variance estimator of change for rotating repeated surveys: an application to the European Union Statistics on Income and Living Conditions household surveys," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 179(1), pages 251-272, January.
    6. Bertrand Garbinti & Pierre Lamarche & Fredérique Savignac, 2024. "Wealth Heterogeneity and the Marginal Propensity to Consume out of Wealth," Working Papers 2022-02, Center for Research in Economics and Statistics.
    7. Jeworrek, Sabrina & Tonzer, Lena, 2025. "Inflation concerns and financial stress," Economics Letters, Elsevier, vol. 254(C).
    8. Francesca Carta & Domenico Depalo, 2025. "Country demographic and socio-economic structure and household consumption," Questioni di Economia e Finanza (Occasional Papers) 920, Bank of Italy, Economic Research and International Relations Area.
    9. Arrondel, Luc & Lamarche, Pierre & Savignac, Frédérique, 2019. "Does inequality matter for the consumption-wealth channel? Empirical evidence," European Economic Review, Elsevier, vol. 111(C), pages 139-165.
    10. Pallotti, Filippo & Paz-Pardo, Gonzalo & Slacalek, Jiri & Tristani, Oreste & Violante, Giovanni L., 2024. "Who bears the costs of inflation? Euro area households and the 2021–2023 shock," Journal of Monetary Economics, Elsevier, vol. 148(S).
    11. Paiella, Monica, 2007. "Does wealth affect consumption? Evidence for Italy," Journal of Macroeconomics, Elsevier, vol. 29(1), pages 189-205, March.
    12. Romina Gambacorta & Eleonora Porreca, 2025. "Bridging techniques in the redesign of the Italian Survey on Household Income and Wealth," METRON, Springer;Sapienza Università di Roma, vol. 83(1), pages 43-74, April.
    13. Orazio P. Attanasio & Guglielmo Weber, 2010. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy," Journal of Economic Literature, American Economic Association, vol. 48(3), pages 693-751, September.
    14. Emanuele Ciani & Salvatore Lattanzio & Graziella Mendicino & Eliana Viviano, 2025. "The Italian labour market after the pandemic," Questioni di Economia e Finanza (Occasional Papers) 962, Bank of Italy, Economic Research and International Relations Area.
    15. Fabrizio Colonna & Filippo Scoccianti & Eliana Viviano, 2025. "The slowdown of productivity in the euro area and the role of input prices," Questioni di Economia e Finanza (Occasional Papers) 918, Bank of Italy, Economic Research and International Relations Area.
    16. Adrien Auclert, 2019. "Monetary Policy and the Redistribution Channel," American Economic Review, American Economic Association, vol. 109(6), pages 2333-2367, June.
    17. Charles Yuji Horioka & Luigi Ventura, 2024. "Do the Retired Elderly in Europe Decumulate Their Wealth? The Importance of Bequest Motives, Precautionary Saving, Public Pensions, and Homeownership," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 70(1), pages 187-212, March.
    18. Tullio Jappelli & Luigi Pistaferri, 2014. "Fiscal Policy and MPC Heterogeneity," American Economic Journal: Macroeconomics, American Economic Association, vol. 6(4), pages 107-136, October.
    19. Luigi Pistaferri, 2003. "Anticipated and Unanticipated Wage Changes, Wage Risk, and Intertemporal Labor Supply," Journal of Labor Economics, University of Chicago Press, vol. 21(3), pages 729-754, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Concetta Rondinelli & Federico Tullio & Francesca Zanichelli, 2026. "Demographics and consumption: evolution and composition of household expenditure in Italy," Questioni di Economia e Finanza (Occasional Papers) 1033, Bank of Italy, Economic Research and International Relations Area.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Hong, Seungki, 2023. "MPCs in an emerging economy: Evidence from Peru," Journal of International Economics, Elsevier, vol. 140(C).
    2. Jeppe Druedahl & Emil Bjerre Jensen & Soeren Leth-Petersen, 2022. "The Intertemporal Marginal Propensity to Consume out of Future Persistent Cash-Flows. Evidence from Transaction Data," CEBI working paper series 22-13, University of Copenhagen. Department of Economics. The Center for Economic Behavior and Inequality (CEBI).
    3. Krueger, D. & Mitman, K. & Perri, F., 2016. "Macroeconomics and Household Heterogeneity," Handbook of Macroeconomics, in: J. B. Taylor & Harald Uhlig (ed.), Handbook of Macroeconomics, edition 1, volume 2, chapter 0, pages 843-921, Elsevier.
    4. James Cloyne & Clodomiro Ferreira & Paolo Surico, 2020. "Monetary Policy when Households have Debt: New Evidence on the Transmission Mechanism," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 102-129.
    5. Albacete, Nicolas & Fessler, Pirmin & Pekanov, Atanas, 2025. "The role of MPC heterogeneity for fiscal policy in the euro area," Journal of Macroeconomics, Elsevier, vol. 86(C).
    6. Bardóczy, Bence & Savoia, Ettore & Vel´asquez-Giraldo, Mateo, 2026. "HANK Comes of Age: Monetary Policy with Heterogeneous Overlapping Generations," Working Paper Series 461, Sveriges Riksbank (Central Bank of Sweden).
    7. Anastasios Evgenidis & Apostolos Fasianos, 2019. "Monetary Policy and Wealth Inequalities in Great Britain: Assessing the role of unconventional policies for a decade of household data," Papers 1912.09702, arXiv.org.
    8. Steffen Andersen & Philippe d'Astous & Jimmy Martínez-Correa & Stephen H. Shore, 2018. "Responses to Savings Commitments: Evidence from Mortgage Run-offs," Cahiers de recherche / Working Papers 1, Institut sur la retraite et l'épargne / Retirement and Savings Institute.
    9. Zhorin, Victor, 2026. "The Mortality Input Problem: Trajectory-Dependent Death and the Lifecycle Model," MPRA Paper 129315, University Library of Munich, Germany.
    10. Anna Sokolova, 2023. "Marginal Propensity to Consume and Unemployment: a Meta-analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 813-846, December.
    11. Brzoza-Brzezina, Michał & Rigato, Rodolfo Dinis, 2026. "The great redistribution that wasn’t: a HANK-OLG perspective on monetary policy," Working Paper Series 3197, European Central Bank.
    12. Florin Bilbiie & Xavier Ragot, 2021. "Optimal Monetary Policy and Liquidity with Heterogeneous Households," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 41, pages 71-95, July.
    13. Marco Di Maggio & Amir Kermani & Kaveh Majlesi, 2020. "Stock Market Returns and Consumption," Journal of Finance, American Finance Association, vol. 75(6), pages 3175-3219, December.
    14. Jean-Guillaume Sahuc & Barbara Annicchiarico & Rebecca Clipal, 2025. "Intergenerational Household Finance and the Green Transition Cost," Working Papers hal-05158105, HAL.
    15. Adrien Auclert & Matthew Rognlie & Ludwig Straub, 2024. "The Intertemporal Keynesian Cross," Journal of Political Economy, University of Chicago Press, vol. 132(12), pages 4068-4121.
    16. Bernard, René, 2023. "Mental accounting and the marginal propensity to consume," Discussion Papers 13/2023, Deutsche Bundesbank.
    17. Sumit Agarwal & Wenlan Qian & Bernard Yeung & Huanhuan Zheng, 2024. "Taxing the Rich to Finance Redistribution: Evidence from a Permanent Tax Increase in Singapore," Management Science, INFORMS, vol. 70(4), pages 2518-2548, April.
    18. Frame, David, 2013. "Saving and consumption in cities," Journal of Urban Economics, Elsevier, vol. 73(1), pages 111-124.
    19. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    20. Chipeniuk, Karsten O. & Katz, Nets Hawk & Walker, Todd B., 2022. "Households, auctioneers, and aggregation," European Economic Review, Elsevier, vol. 141(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    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

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdi:opques:qef_1034_26. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bdigvit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.