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The Covid-19 Crisis and Consumption: Survey Evidence from Six EU Countries

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Abstract
Using new panel data from a representative survey of households in the six largest euro area economies, the paper estimates the impact of the Covid-19 crisis on consumption. The panel provides, each month, household-specific indicators of the concern about finances due to Covid-19 from the first peak of the pandemic until October 2020. The results show that this concern causes a significant reduction in non-durable consumption. The paper also explores the potential impact on consumption of government interventions and of another wave of Covid-19, using household-level consumption adjustments to scenarios that involve positive and negative income shocks. Pandemic-related financial concerns induce a significant reduction (increase) in the marginal propensity to consume in response to a positive (negative) income shock, an effect consistent with models of precautionary saving and liquidity constraints. These results are robust to endogeneity problems through the use of panel fixed effects models as well as partial identification methods that account also for time-varying unobservable variables, and provide informative identification regions of the average treatment effect of the financial concern due to Covid-19 under weak assumptions.

Suggested Citation

  • Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Geoff Kenny, 2020. "The Covid-19 Crisis and Consumption: Survey Evidence from Six EU Countries," CSEF Working Papers 590, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 18 Dec 2020.
    • Handle: RePEc:sef:csefwp:590
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    References listed on IDEAS

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    1. Charles F. Manski, 1997. "Monotone Treatment Response," Econometrica, Econometric Society, vol. 65(6), pages 1311-1334, November.
    2. Sims,Christopher A. (ed.), 1994. "Advances in Econometrics," Cambridge Books, Cambridge University Press, number 9780521444606, October.
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    More about this item

    Keywords

    Covid-19; Consumption; Income Shocks; Marginal Propensity to Consume; Financial concerns; Fiscal policies.;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household

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