It’s Not All Fiscal: Effects of Income, Fiscal Policy, and Wealth on Private Consumption

May 26, 2015

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We attempt to disentangle income and wealth effects on consumption by disaggregating both the different types of income and wealth. We estimate a consumption function for a panel of quarterly data for 14 advanced economies spanning 1998 to 2012, using an error correction specification. We find a significant long-term relation between consumption and the different components of income and wealth. While fiscal policy had direct effects on consumption, the analysis suggests that wealth effects were sizeable, and therefore need to be kept in mind when analyzing consumption trends going forward.

Subject: Consumption, Housing, Income, National accounts, Private consumption, Social security contributions, Taxes

Keywords: Consumption, consumption growth, financial assets, fiscal policy, Global, household debt, Housing, housing assets, Income, Labor income, Private consumption, Social security contributions, wealth, wealth effects, wealth variable, WP

Pages:
30
Volume:
2015
DOI:
https://doi.org/10.5089/9781513584744.001
Issue:
112
Series:
Working Paper No. 2015/112
Stock No:
WPIEA2015112
ISBN:
9781513584744
ISSN:
1018-5941

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