The Impact of Advertising on Aggregate Consumption: the Case of Italy

One of the last assumptions of neoclassical economics that has not yet been fully challenged is the exogeneity of consumers'preferences. In this paper we attempt to verify and measure the effects of advertising on consumers'demand. We do so by carrying out an econometric analysis, relying on a rather simple econometric model on Italian economy, using quarterly data from 1980 to 2000. We build an ADL model with Koyck transformation and different (and advertising-specific) geometrical rates of decline, and we test both the flow-form and the stock form of advertising. Our conclusions show that in the period under consideration advertising had a positive and significant effect on consumption, with short term and long term elasticities equal respectively to 0.034 and 0.16.