Wealth Effects on Consumption in Austria

Between the start of the financial crisis in the third quarter of 2007 and the third quarter of 2008, Austrian household sector losses arising from investment in tradable securities amounted to approximately EUR 24 billion. This study uses micro and macro data to examine the possible consequences of this loss of wealth on the consumption behavior of households. Micro data for Austria indicate that owing to unequal distribution, it is primarily the wealthier households that have been directly affected by the crisis. However, all households may be impacted by the consequences of the financial crisis via confidence effects, irrespective of whether they hold securities or not. Estimates based on macro data show that the marginal propensity to consume out of wealth of Austrian households is 0.05 and thus within the international average. Results of Oesterreichische Nationalbank (OeNB) simulations using a macroeconometric model indicate that a decrease in wealth has a relatively minor effect on private consumption and economic growth in Austria. Moreover, this effect only occurs with a substantial lag. Due to the historic singularity of the current financial crisis, however, above all the indirect confidence effects could be more intense than estimated.