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Wealth effect in the US: evidence from the combination of two surveys

Salotti, Simone (2010): Wealth effect in the US: evidence from the combination of two surveys.

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Abstract

This article investigates how wealth affected household consumption in the USA in the period 1989-2007. Previous empirical results are mixed, mostly because of the low quality of the data more readily available. We combine information from the Consumer Expenditure Survey and the Survey of Consumer Finances to perform a detailed analysis on the effects of several types of wealth on consumption. Our estimates indicate that there is a significant tangible wealth effect, while financial wealth seems to affect consumption mainly for the richer part of the population. Both effects are larger during periods of prices booms. Older households experience a higher wealth effect out of the house of residence with respect to the younger ones. Finally, a sort of myopic behavior emerges, since households seem to disregard net wealth and decide about consumption looking at gross wealth only.

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