The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach
Erich Battistin, Agar Brugiavini, Enrico Rettore, Guglielmo Weber
American Economic Review · 2009 · Volume 99 · Issue 5
Abstract
We investigate the size of the consumption drop at retirement in Italy by exploiting pension eligibility information to correct for endogenous retirement. We take a regression discontinuity approach and assume that spending would be smooth around pension eligibility if individuals did not retire. We estimate a 9.8 percent drop associated to retirement. This fall is not driven by liquidity problems for the less well off and can be accounted for by drops in work-related expenses. Retirement also induces a significant drop in the number of grown children living with their parents and this explains most of the retirement consumption drop. (JEL D91, E21, J26, J31)
Keywords
Intertemporal Consumer Choice, Life Cycle Models and Saving, Macroeconomics: Consumption, Saving, Wealth, Retirement, Retirement Policies, Nonwage Labor Costs and Benefits, Private Pensions
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