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Wealth effects and the consumption of Italian households in the Great Recession

  • Renata Bottazzi

    ()

    (Institute for Fiscal Studies and University of Bologna)

  • Serena Trucchi
  • Matthew Wakefield

    ()

    (Institute for Fiscal Studies and University of Bologna)

We estimate marginal propensities to consume from wealth shocks for Italian households. Large asset price shocks in 2008 underpin an IV estimator. A euro fall in financial or risky financial wealth resulted in cuts in annual total (non-durable) consumption of 5-9 (3.5-6) cents. There is evidence of effects for food spending. Responses of total and non-durable spending to changes in housing wealth are 0.2 to 0.4 cents/euro. Counterfactuals indicate financial wealth effects were important (relative to other factors) for consumption falls in 2008/09. Thus wealth effects on consumption can be important for households' welfare and aggregate outcomes.

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Paper provided by Institute for Fiscal Studies in its series IFS Working Papers with number W13/21.

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Date of creation: Aug 2013
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Handle: RePEc:ifs:ifsewp:13/21
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