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Wealth Effects and the Consumption of Italian Households in the Great Recession

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  • R. Bottazzi
  • S. Trucchi
  • M. Wakefield

Abstract

We estimate marginal propensities to consume from wealth shocks for Italian households in the early part of the Great Recession. Large asset price shocks in 2008 underpin an IV estimator. A euro fall in risky financial wealth resulted in cuts in annual total (non?durable) consumption of 8.5? 9 (5.5?5.7) cents. There is evidence of effects on food spending. Responses of total and nondurable spending to changes in housing wealth are 0.2 to 0.3 cents/euro. Point estimates of the effect of the financial wealth shock are larger if the youngest and/or oldest households are excluded. Results indicate that responses to the wealth shock were stronger for those who became pessimistic about the stock market, and for those owners of risky assets who also held mortgage debt. Counterfactuals indicate financial wealth effects were important (relative to other factors) for consumption falls in Italy in 2007/08.

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  • R. Bottazzi & S. Trucchi & M. Wakefield, 2017. "Wealth Effects and the Consumption of Italian Households in the Great Recession," Working Papers wp1097, Dipartimento Scienze Economiche, Universita' di Bologna.
    • Handle: RePEc:bol:bodewp:wp1097
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    Cited by:

    1. Klos, Alexander & Rottke, Simon, 2013. "Saving and Consumption When Children Move Out," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79786, Verein für Socialpolitik / German Economic Association.
    2. Simon Rottke & Alexander Klos, 2016. "Savings and Consumption When Children Move Out," Review of Finance, European Finance Association, vol. 20(6), pages 2349-2377.
    3. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2013. "Wealth effects and the consumption of Italian households in the Great Recession," IFS Working Papers W13/21, Institute for Fiscal Studies.
    4. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2021. "Labour supply responses to financial wealth shocks: evidence from Italy," Fiscal Studies, John Wiley & Sons, vol. 42(2), pages 291-317, June.
    5. Garbinti, Bertrand & Lamarche, Pierre & Savignac, Frédérique & Lecanu, Charlélie, 2020. "Wealth effect on consumption during the sovereign debt crisis: households heterogeneity in the euro area," Working Paper Series 2357, European Central Bank.
    6. Marco Angrisani & Michael D. Hurd & Susann Rohwedder, 2015. "The Effect of Housing and Stock Wealth Losses on Spending in the Great Recession," Working Papers WR-1101, RAND Corporation.
    7. Giampaolo Gabbi & Elisa Ticci & Pietro Vozzella, 2014. "Financialisation and Economic and Financial Crises: The Case of Italy," FESSUD studies fstudy23, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    8. Kovacs, Agnes & Rondinelli, Concetta & Trucchi, Serena, 2021. "Permanent versus transitory income shocks over the business cycle," European Economic Review, Elsevier, vol. 139(C).
    9. Renata Bottazzi & Serena Trucchi & Matthew Wakefield, 2020. "Consumption Responses to a Large Shock to Financial Wealth: Evidence from Italy," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(2), pages 762-789, April.
    10. Marco Angrisani & Michael Hurd & Susann Rohwedder, 2019. "The Effect Of Housing Wealth Losses On Spending In The Great Recession," Economic Inquiry, Western Economic Association International, vol. 57(2), pages 972-996, April.
    11. Ersi Athanassiou & Ekaterini Tsouma, 2017. "Financial and Housing Wealth Effects on Private Consumption: The Case of Greece," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 15(1), pages 63-86.

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    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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