Estimating Wealth Effects on Consumption in Finland A Cross-Sectional Household Level Data Study Focus on Housing and Forest Wealth
Year: 2014
Type: article
Study design: Observational Study
Abstract: The aim of this thesis is to study the effects of household wealth on consumption. The focus of the study is on the effects of physical wealth, namely housing and forest wealth, on consumption in Finland. The empirical estimation is conducted using cross-sectional household level data obtained from the 1998 Household Wealth Survey compiled by Statistics Finland. The estimation is performed using OLS regression and taking into account survey design considerations. The results from the study provide evidence confirming the existence of a wealth effect on consumption regarding housing wealth, forest wealth as well as financial wealth. The study finds the housing wealth effect on consumption to be positive and much larger than the financial wealth effect for those households that are homeowners. However, the magnitude and the sign of the wealth effect seems to somewhat differ by the amount of accumulated net housing wealth. Evidence of the existence of a life-cycle pattern in consumption is also confirmed for the subsample of homeowners by comparing differences in wealth effects between household age groups. It should however be emphasised, that actual life-cycle behaviour can only be traced with the use of panel data. The study finds evidence that the effect of forest wealth on consumption may be negative for the subsample of forest owners. Further study then reveals that the negative estimate for the effect of net forest wealth on consumption observed for the whole subsample seems to arise from the much stronger and significant negative estimate obtained for the subgroup of forest owning farmer households. This finding could in part be explained by the skewed age distribution of forest owning households, the fact that forest owning farmer households are likely to be engaging more in home production, which lowers observed consumption outside of the home, and that farmer owned forestland estates, and the logging income they generate, are often used for funding farm associated investments. In order to study the concavity of the consumption function in Finland, wealth and income effects are estimated separately for the net wealth quintiles of households using the whole sample of observations. The results indicate that the effect of a change in financial wealth or income on consumption is indeed larger for households with small total net wealth. This finding suggests that in the case of a wealth or income shock that disproportionately affects households with less net wealth, the economy level effects on aggregate consumption may be larger than those estimated by traditional models.
Source: Doria (University of Helsinki)
Author: Maria Helander
Language: English
Subfield: Finance
Domain: Social Sciences
SDG: No poverty
Open Access status: green
OpenAlex ID: W2183102094