Household consumption: How households' disposable income, financial assets and total debt affect household consumption

Abstract: This study examines whether macroeconomic variables, such as household disposableincome, financial assets and total debt affect household consumption by applying Panel dataon The fixed effects model. The data included 13 European OECD countries that are membersof EMU between the years 2009-2019. The test showed that disposable income is the onlyvariable with statistically significant effect on household consumption. The life cyclehypothesis as well as The permanent income hypothesis, states that individuals strive forsmooth consumption by distributing their resources relatively evenly. That way they are ableto maintain a certain standard of living. According to The Ricardian equivalence theorem,neither changes in saving nor indebtedness increase private consumption, if the initial wealthremains unchanged. These theories are included in the theoretical reference which, togetherwith previous studies, constitutes the starting point for this paper.