Changes in Consumption Behaviour: Italy in the Early 1990s

This paper investigates the causes of the Italian consumption decline of the early 1990’s by estimating deviations from normal consumption for 1985-94. The paper uses household data from the Survey of Family Budgets (SFB) from ISTAT, a particularly rich but relatively unexplored source containing detailed demographic and expenditure information for over 30,000 Italian households each year. The paper finds that the decline in consumption was larger for the working age households and that it was larger in the south, among the self-employed, and among public sector employees. The decline can be dated from the third quarter of 1992. A simple simulation shows 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.