The Retirement Consumption Puzzle Effect in Indonesia: Evidence from IFLS 4 and 5

Margareta Vania Putri () and Catur Sugiyanto ()
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Margareta Vania Putri: Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada
Catur Sugiyanto: Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada

No 202303004, Gadjah Mada Economics Working Paper Series from Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada

Abstract: This study aims to see whether there is a decline in consumption in retirement which is not in line with the life cycle hypothesis (consumption puzzle effect). Previous studies revealed that consumption has shifted when entering retirement due to efficient spending. This research analyzes the consumption pattern of the Indonesian elderly peculiarly in the frame of the retirement consumption puzzle. Utilizing data from the Indonesian Family Life Survey (IFLS) wave 4 and 5 from 2007 and 2014, and this study constructed panel data with a total sample of 2,556 individuals. The Difference in Differences (DiD) method is used to see whether the change in labor status toward retirement causes a decrease in household consumption. As robustness, this study also uses the division of age categories. The results of this study indicate that there is a retirement consumption puzzle in Indonesia, with a decrease of 19.9% in total expenditure per capita. The consumption decrease in retirement indicates government should consider pension funds and create social security programs to maintain the welfare of the elderly.

Keywords: Retirement; Household Consumption; Life Cycle Hypothesis; DiD (search for similar items in EconPapers)
JEL-codes: D13 I31 J22 K31 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2023-03
New Economics Papers: this item is included in nep-age and nep-sea
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