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American Economic Review: Vol. 99 No. 5 (December 2009)

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The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach

Article Citation

Battistin, Erich, Agar Brugiavini, Enrico Rettore, and Guglielmo Weber. 2009. "The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach." American Economic Review, 99(5): 2209-26.

DOI: 10.1257/aer.99.5.2209

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)

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Authors

Battistin, Erich (U Padova and IRVAPP)
Brugiavini, Agar (U Venice "Ca'Foscari")
Rettore, Enrico (U Padova and IRVAPP)
Weber, Guglielmo (U Padova and IFS)

JEL Classifications

D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
E21: Macroeconomics: Consumption; Saving; Wealth
J26: Retirement; Retirement Policies
J32: Nonwage Labor Costs and Benefits; Private Pensions


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