Rue de la Banque no. 42: Do wealth inequalities have an impact on consumption?

On average, wealth effects on consumption are weak in France. However, this average effect may hide differences in behaviour. This issue of Rue de la Banque looks at the effects of wealth on consumption, and shows that they vary according to the size and composition of households’ assets. In the event of an unexpected increase in wealth, poorer households tend to consume a larger share of this surplus. For these households, the propensity to consume is 11 cents per euro of additional wealth, whereas for wealthier households it is almost nil. These differences could be explained by the existence of stronger liquidity constraints on poorer households. An increase in the price of equity holdings tends to raise overall consumption inequalities. However, our simulation shows that an unexpected wealth shock would have a relatively limited effect on consumption inequalities.