Does consumption inequality track income inequality in Italy?

This paper presents stylized facts on labor supply, income, consumption, wealth, and several measures of consumption and income inequality drawn from the 1980-2006 Survey of Household Income and Wealth (SHIW)conducted by the Bank of Italy. The SHIW provides information on consumption, income and wealth, and a sizable panel component that allows econometricians to estimate sophisticated income, consumption, and wealth processes and to analyze labor market and portfolio transitions. Given the population changes associated with the demographic transition and Italian policy reforms since the mid 1980s, the survey information provide a level playing field from which to analyze macroeconomic policy shifts and structural reforms based on microeconomic data. We find that over the sample period income inequality is higher and has grown faster than consumption inequality. The labor market reforms of the 1990s are the most plausible explanation for the rise in income inequality. Acknowledgments. This paper has been prepared for a Special Issue of Review of Economic Dynamics. We thank Richard Blundell, Andrea Brandolini, the editors, two anonymous referees and participants to the 5th University of Pennsylvania-IGIER International Conference on Inequality in Macroeconomics: Facts and Theories (Philadelphia, November 3-4 2008) for useful comments. * University of Naples Federico II, CSEF, and CEPR ** Stanford University, NBER and CEPR