The retirement consumption puzzle: evidence from a regression discontinuity approach

Erich Battistin (), Agar Brugiavini, Enrico Rettore and Guglielmo Weber

No W08/05, IFS Working Papers from Institute for Fiscal Studies

Abstract: In this paper we investigate the size of the consumption drop at retirement in Italy. We use micro data on food and total non-durable household spending covering the period 1993-2004, and evaluate the change in consumption that accompanies retirement by exploiting the exogenous variability in pension eligibility to correct for the endogenous nature of the retirement decision. We take a regression discontinuity approach, and make the identifying assumption that consumption would be the same around the threshold for pension eligibility if individuals would not retire. We check in our data that a non-negligible fraction of individuals retire as soon as they become eligible, and estimate at 9:8% the part of the non-durable consumption drop that is associated with retirement induced by eligibility. We show that such fall is not driven by liquidity problems for the less well off in the population, and can be accounted for by drops in goods that are work-related expenses or leisure substitutes. However, we also show that retirement induces a significant drop in the number of grown children living with their parents, and this can account for most of the retirement consumption drop.

Keywords: Consumption; regression discontinuity design; retirement (search for similar items in EconPapers)
JEL-codes: D9 E2 (search for similar items in EconPapers)
Date: 2008-07-25
New Economics Papers: this item is included in nep-age
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach (2009)
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