Income and Wealth: Is There a Need to Decompose Their Effects When Analysing Consumption? Evidence from Greece

Abstract

The present paper indicates the need to decompose not only household wealth but also disposable income to efficiently analyse consumer spending, using as a case study the economy of Greece in 2003Q1-2020Q1. The results indicate that decomposing disposable income is essential for studying private consumption, as the estimated elasticities to consume of the different income components differ significantly. Labour income is shown to be the driving force of consumption in Greece throughout the period analysed, which encompasses the crisis period and the short recovery that followed it. The results provide useful implications for policies aiming at economic growth, as consumption accounts for the largest component of GDP in most economies.