Do capital gains affect consumption? Estimates of wealth effects from Italian households� behavior

We use detailed data on housing prices in Italy available for a large number of years and with a fine geographical breakdown to compute capital gains and losses on the most widespread asset among consumers, housing, and inquire whether changes in housing values affect consumption. We find that consumer expenditures do react to capital gains, with a marginal propensity to consume out of real value changes of housing wealth of about 0.02. Reactions are different across types of consumers: while homeowners increase consumption when house prices increase, with a marginal propensity of about 0.035, the renters� response to the higher house cost tends to be that of increased savings. For the owners of listed stocks the response to capital gains is difficult to estimate with statistical precision, even if, for the limited sample of owners of these assets, its negative sign may be indicative of prevailing substitution over income effects.