The Effect of House Prices on Household Consumption in Italy |
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Authors: | R Calcagno E Fornero M C Rossi |
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Institution: | 1.VU University Amsterdam,Amsterdam,the Netherlands;2.Facoltà di Economia, Dipartimento di Scienze Economiche e Finanziarie “G.Prato”,Università di Torino,Torino,Italy;3.Facoltà di Economia,University of Rome Tor Vergata,Roma,Italy;4.CeRP,Via Real Collegio 30,Moncalieri (TO),Italy |
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Abstract: | This paper studies the effect of a change in real estate wealth on the consumption behaviour of Italian households, using
the Bank of Italy’s Survey of Household Income and Wealth dataset. We relate annual household consumption to capital gains
in housing, controlling for characteristics such as age. In line with the empirical predictions of our model, we find the
oldest households—which are less affected by the higher costs of future rent—to be the most affected by increases in real
net housing wealth. Younger households, on the other hand, are not significantly affected in their consumption decisions by
house price increases. We also take into account the fact that benefiting from capital gains is conditional on owning housing
wealth and estimate the different impacts of house price changes on the savings behaviours of both homeowners and renters.
Our estimates suggest that house price increases raise consumption not only for homeowners but also for renters. |
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