Relative Price Changes and Households' Welfare in Italy

Authors


  • Note: The views expressed in the article are those of the author and not necessarily those of the institutions the authors are affiliated to. We wish to thank the participants at the XXI SIEP Conference held in Pavia, September 2009, for their suggestions. Insightful comments from two anonymous referees and from Stephan Klasen are gratefully acknowledged. Remaining errors are ours.

Paolo Liberati, Università Roma Tre, Dipartimento di Economia, Via Silvio D'Amico, 77, Rome, Italy (paolo.liberati@uniroma3.it).

Abstract

The entrance of Italy in the Euro area in 2001 has given rise to a wide debate about the perception of inflation on households' well-being. However, most of the debate has involved the measurement of the “correct” consumer price index at the national level. Much less analysis has been carried out on the distributional consequences of inflation on every household. The paper addresses this issue by performing a microsimulation analysis of the impact of inflation on Italian households in the period 1997–2007. It is shown that the impact of inflation has an ambiguous path over the period, with a large concentration of welfare losses around the introduction of the Euro currency. In particular, it is found that poorer and larger households are severely hurt by inflation and that the prices of gas and gasoline are largely responsible for determining the living conditions of Italian households.

Ancillary