Abstract
Purpose The purpose of this paper is to analyze the changes in wealth and consumption inequality in Spain and estimate the consumption effects of housing and financial wealth. Design/methodology/approach The estimations are made using micro-data from the Spanish Survey of Household Finances (2002–2014) applying cross-section, panel and interquartile techniques. Findings The findings of this paper suggest that there was an increase in wealth inequality during the period under analysis and a reduction in consumption inequality. Also, the authors find a significant positive effect of wealth on consumer expenditure. Disaggregating by asset type, the value of the main residence is the category with the highest estimated effect on consumption, whereas the remaining types of assets, although still positive and generally significant, have more modest effects on consumption. However, the estimated coefficients and their significance can change substantially depending on the phase of the economic cycle and the position of the household in the income distribution. Originality/value These results provide new empirical evidence on the effects of household wealth changes on their consumption behavior, the differences depending on the household's position in the distribution and the fluctuations of these estimated coefficients throughout a period of profound economic upheavals.
Highlights
The collapse in both output and household consumption that took place in Spain in the wake of the last global economic crisis was so deep and persistent that, according to OECD data, pre-crisis levels had not yet been recovered by 2016
Among the transmission channels that share real and financial wealth, we find the realized wealth effect – if asset prices rise and households sell them, they would be able to boost consumption – the unrealized wealth effect – even if they do not sell the assets, households discount the increase in price and may consume more – and the liquidity constraints effect – an increase in asset prices reduces the credit constraints of households by increasing the value of what they can offer as collateral for a loan (Ludwig and Sløk, 2002)
The relationship between consumption and the value of the main residence resembles the behavior of house prices in Spain explained in the Introduction: the elasticity with respect to consumption expenditure grew by 70% between 2002 and 2008 and plummeted during the following two waves, returning to a level very close to the estimate of the first wave
Summary
The collapse in both output and household consumption that took place in Spain in the wake of the last global economic crisis was so deep and persistent that, according to OECD data, pre-crisis levels had not yet been recovered by 2016. Throughout the five years that the recession lasted, gross domestic product (GDP) per capita fell by 10.6% and private consumption expenditure per capita shrank by 15.2%, breaking with a growth streak that dated back to the early 1990s. © Juan Ignacio Martín-Legendre, Pablo Castellanos-García and José Manuel Sanchez-Santos. The full terms of this licence may be seen at http://creativecommons.org/licences/by/4.0/legalcode
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