Consumption Dynamics and Labor/Non-Labor Incomes

Ignacio Belloc (), José Alberto Molina and Jorge Velilla ()
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Ignacio Belloc: University of Zaragoza
Jorge Velilla: University of Zaragoza

No 18982, IZA Discussion Papers from IZA Network @ LISER

Abstract: This paper examines the transmission of labor and non-labor income to household consumption. To do so, we develop a dynamic model of collective household behavior, and estimate consumption Euler equations using cross-country data from the EU-SILC for 11 European countries over 2006–2019. Results indicate different consumption dynamics depending on the source of the income and the identity of the recipient, which reflects separate preferences over goods among husbands and wives. The household economic environment affects consumption with persistence, as predicted by models with limited commitment. We find small consumption responses to non-labor incomes, which tend to be transitory and infrequent payments. The results also suggest that women are more risk averse, as the consumption response to wife wages is smaller than the response to husband wages. These findings contribute to the literature on consumption dynamics by providing harmonized cross-country evidence for Europe.

Keywords: dynamic collective model; limited commitment; consumption; wages; income; EU-SILC (search for similar items in EconPapers)
JEL-codes: D12 D13 D15 D31 E21 (search for similar items in EconPapers)
Date: 2026-09
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Persistent link: https://EconPapers.repec.org/RePEc:iza:izadps:dp18982

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