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

31 Pages Posted: 8 Jun 2015

See all articles by Laura Jaramillo

Laura Jaramillo

International Monetary Fund (IMF)

Alexandre Chailloux

International Monetary Fund (IMF)

Date Written: May 2015

Abstract

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.

Keywords: Private consumption, Income, Fiscal policy, Income distribution, Developed countries, Panel analysis, Econometric models, Time series, Cross country analysis, wealth, housing assets, financial assets, household debt, benefits, taxes

JEL Classification: E21, E62, D12, H31

Suggested Citation

Jaramillo, Laura and Chailloux, Alexandre Bruno, It's Not All Fiscal: Effects of Income, Fiscal Policy, and Wealth on Private Consumption (May 2015). IMF Working Paper No. 15/112, Available at SSRN: https://ssrn.com/abstract=2615304

Laura Jaramillo (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Alexandre Bruno Chailloux

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

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