What can we learn about household consumption expenditure from data on income and assets?

Abstract

A major difficulty faced by researchers who want to study the consumption and savings behavior of households is the lack of reliable panel data on household expenditures. One possibility is to use surveys that follow the same households over time, but such data are rare and they typically have small sample sizes and face significant measurement issues. An alternative approach is to use the accounting identity that total household spending is equal to income plus capital gains minus the change in wealth over the period. The goal of this paper is to examine the advantages and difficulties of using this accounting identity to construct a population panel data with information on household expenditure. To derive such measures of consumption expenditure, we combine several data sources from Norway over the period 1994-2014. This allows us to link tax records on income and wealth to other administrative data with information on financial and real estate transactions. Using this data, we derive household expenditure from the accounting identity, before assessing the sensitivity of this measure of consumption expenditure to the assumptions made and the data used. We then compare our measures of household expenditure to those reported in expenditure surveys and to the aggregates from national accounts. We also illustrate the research opportunities arising from the derived measures of consumption expenditure through two applications: the first is an examination of how relative wage movements among birth cohorts and education groups affected the distribution of household expenditure, while the second is a study of the transmission of income shocks to household consumption.

Stock Market Returns and Consumption

“…As shown inEika et al (2017), conditional on having information on real estate transactions, taking into account stock transactions within each year does not add much to reducing measurement error.31 Here it should be mentioned that although, as inKoijen, et al (2015), in our main analysis we exclude a few households with negative imputed consumption, our results are qualitatively and quantitatively the same without excluding those data points.…”

“…Therefore, instead of using capital gains based on CEX, they impute the level of stock holding of each individual in the beginning of each year and assume each household experiences the aggregate market return on their portfolio. 15 For a detailed discussion of the quality of imputed consumption based on administrative data and its comparison with survey data, see Koijen et al (2015), Eika, Mogstad and Vestad (2017), and . These papers show that the quality of the consumption measure based on the residual method depends on the availability of data on detailed household level asset allocation as well as data on housing transactions.…”

Heterogeneity and Persistence in Returns to Wealth

“…The yield on housing is estimated as: , where is the imputed rent net of ownership and maintenance cost and the capital gain/loss on housing. Following Eika, Mogstad, and Vestad (), we assume that the imputed rent is a constant fraction of the house value (which they estimate to be 2.88%); finally, we obtain the capital gain on housing as . The income from private businesses is the sum of distributed dividends, available from the Shareholder Registry, and the individual share of the private business' retained profits, which we interpret as a measure of the capital gains on the value of the private business .…”

The Transmission of Monetary Policy under the Microscope

“…Appendix B.1 presents more details on how we com-19 Consumption imputation has by now been widely applied in the literature (see e.g. Leth-Petersen 2010;Eika, Mogstad and Vestad 2020;Fagereng, Holm and Natvik 2018).…”