Wealth effects on consumption: microeconometric estimates from the Spanish survey of household finances

This paper presents estimates of wealth effects on consumer spending using the first wave of a new survey of Spanish household finances (EFF) that contains direct measures of asset holdings and consumption. A distinguishing feature of the EFF is the availability of such information from a representative sample subject to stratification by wealth. To control for the potential endogeneity of housing wealth, we exploit geographical house price variation and inheritance information in the EFF as instrumental variables. We focus on the effects of housing wealth, distinguishing between main and secondary housing, but also report OLS estimates of financial wealth effects. The pattern of wealth effects across age groups is also analyzed. We find large and statistically significant housing wealth effects for prime age households. Overall, the largest wealth effects are for owner occupied housing, followed by secondary housing, with financial wealth effects being smaller and insignificant.