CONSUMPTION SMOOTHING CHANNELS WITHIN AND BETWEEN HOUSEHOLDS

This paper aims to fill the gap on the analysis of consumption smoothing/risksharing channels at the micro level, both within and across households. Using data from the Bank of Italy’s Survey on Household Income and Wealth covering the financial crisis, we are able to quantify in a unified and consistent framework several risksharing mechanisms that so far have been documented separately. We find that Italian households were able to smooth about 83% of shocks household head’s earnings in 2008-2010, a fraction rising to almost 87% in 2010-2012. The most important smoothing mechanisms turns out to be self-insurance through saving/dissaving and within-household risksharing Interestingly, risksharing through portfolio diversification and private transfers are rather limited, but the overall degree of shock absorption occurring through private risksharing channels hovers around two thirds, as opposed to around one fifth of a shock cushioned by public transfers and taxes