Changes in Consumption Behaviour: Italy in the Early 1990s

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.