Working Paper: CEPR ID: DP2006
Authors: Charles Grant; Raffaele Miniaci; Guglielmo Weber
Abstract: This paper investigates the causes of the Italian consumption bust of the early 1990s by estimating deviations from 'normal' consumption using household level data for 1985-94. The data set used is a particularly rich, but as yet unexplored, source recently released by ISTAT. It contains detailed demographic and expenditure information for over 30,000 Italian households each year. The main findings are that the decline in consumption was larger for the working age households. The fall in consumption was also stronger in the south, among the self-employed, and among public sector employees. The decline can be dated from the third quarter of 1992. We use a simulation to show how these results can be reconciled with the life-cycle model of consumption in which there is a permanent and unexpected shock to lifetime income induced by the pension and other reforms introduced by the Amato government.
Keywords: consumption; micro data; business cycle
JEL Codes: D91; E21; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Amato government reforms in 1992 (E69) | consumption behavior in Italy (D12) |
| increased taxation (H29) | decline in consumption (D12) |
| reduced pension benefits (H55) | decline in consumption (D12) |
| decline in consumption (D12) | reassessment of future income prospects (J17) |
| Amato government reforms in 1992 (E69) | decline in consumption for working-age households (D12) |
| Amato government reforms in 1992 (E69) | decline in consumption for self-employed and public sector employees (D12) |
| Amato government reforms in 1992 (E69) | sharper decline in consumption in southern regions of Italy (R22) |
| young people (J13) | reduced consumption (E21) |
| those near retirement age (J26) | pronounced fall in consumption (E20) |