Alcune considerazioni sul ruolo della ricchezza nella funzione aggregata del consumo - Analysis of the rate of wealth in the consumption function

Analysis of the rate of wealth in the consumption function The purpose of this paper is twofold. First it discusses the role of wealth in the consumption function. Wealth can be demanded either because it yields a future income, as « permanent income » and « life cycle » theories assume, or because it provides a guarantee against unpredictable events, as « precautionary » theories state. In the first case, wealth is just a constraint on long run consumption maximization, in the latter it enters the individual utility function. Secondly this paper suggests that during inflation, after correcting income to take into account the loss of value, in real terms, of the financial assets, the « precautionary » theories are probably the most convincing to explain current consumption, because uncertainty emphasizes the demand for wealth chiefly as a precaution. Empirical investigation in Italy for 1970-1982 tentatively shows that financial assets had an important role in influencing aggregate household consumption. This conclusion must he taken with caution, because my empirical results are consistent with the others forms of the consumption function.