Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/154446 
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper No. 2013
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We use information on monthly wage increases set by collective agreements in Italy and exploit their variation across sectors and over time in order to examine how household consumption responds to different types of positive income shocks (regular tranches versus lump-sum payments). Focusing on single-earner households, we find evidence of consumption smoothing in accordance with the Permanent-Income Hypothesis, since total and food consumption do not exhibit excess sensitivity to anticipated regular payments. Consumption does not respond at the date of the announcement of income increases either, as these are known to compensate workers for the overall loss in their wages' purchasing power. However, consumption responds, albeit a little, to transitory and less anticipated one-off payments, as the expenditures on clothing & shoes increase upon the receipt of the lump-sum payments. This behaviour is consistent with bounded rationality as consumers do not consider the lump-sum as part of the overall wage inflation adjustment.
Subjects: 
bounded rationality
consumption
permanent income hypothesis
union contracts
JEL: 
D12
E21
J51
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2735-2
Document Type: 
Working Paper

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