Household consumption and wealth: beyond the macroeconomic debate ....

Summary The impact of the value of wealth on household consumption is generally studied at the macroeconomic level. The analysis of this wealth effect is particularly important for economic policy in the recent context of high asset valuations. On aggregate data, estimates for France show that an additional euro of wealth would lead to an increase in consumption of 0.8 to 1 euro cent, with this effect being more important for financial wealth than for real estate. Our study uses data from the 2010 Wealth Survey to assess this same link based on individual data. It uses differences in wealth composition and level to identify heterogeneities in consumption behavior. The results confirm that the marginal propensity to consume wealth is low overall, at 0.5 euro cents per euro of additional wealth. However, it depends on the nature of the assets and shows strong non-linearities along the wealth scale. Thus, the marginal propensity to consume financial wealth is more than 11 cents per euro of additional wealth for households whose net wealth is below the median, while it is zero for households in the richest decile. This wealth effect is much lower for the main residence: 1.1 cents for net wealth below the median and 0.7 cents for the richest decile. Given the concentration of wealth, the average wealth effect mainly reflects the behavior of the richest households. But the more pronounced effect observed for less well-off households is a result to be taken into account by monetary and fiscal policies. These policies will not have the same impact on demand and growth depending on which asset classes and household categories they affect the most.