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Expenditures at retirement by Spanish households

Jose Labeaga and Ruben Osuna ()

No 2007-36, Working Papers from FEDEA

Abstract: The life cycle theory predicts the smoothing of consumption over time by forward-looking agents with concave utility functions. However, many empirical studies have shown a significant drop in expenditures after retirement in US, Italy, Germany, UK, Spain and other countries. This contradicts the main result of the life cycle model, and this gap between theory and reality is known as the retirement consumption puzzle since the seminal paper by Banks, Blundell and Tunner (1998). In this study, we analyze the impact of retirement on income and a breakdown of expenditures by estimating complete demand systems and single equations using an unbalanced panel of Spanish households. Although in terms of the non-durable expenditures modelled we observe the puzzle, the categories related to a decrease in consumption are only those subsidized for retirees (health expenditures and public transport).

Date: 2007-11
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