American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Retirement Consumption and Pension Design
American Economic Review
vol. 114,
no. 1, January 2024
(pp. 89–133)
Abstract
This paper analyzes consumption to evaluate the distributional effects of pension reforms. Using Swedish administrative data, we show that on average, workers who retire earlier consume less while retired and experience larger drops in consumption around retirement. Interpreted via a theoretical model, these findings imply that reforms incentivizing later retirement incur a substantial consumption smoothing cost. Turning to other features of pension policy, we find that reforms that redistribute based on early-career labor supply would have opposite-signed redistributive effects, while differentiating on wealth may help to target pension benefits toward those who are vulnerable to larger drops in consumption around retirement.Citation
Kolsrud, Jonas, Camille Landais, Daniel Reck, and Johannes Spinnewijn. 2024. "Retirement Consumption and Pension Design." American Economic Review, 114 (1): 89–133. DOI: 10.1257/aer.20221426Additional Materials
JEL Classification
- E21 Macroeconomics: Consumption; Saving; Wealth
- G51 Household Finance: Household Saving, Borrowing, Debt, and Wealth
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H55 Social Security and Public Pensions
- J22 Time Allocation and Labor Supply
- J26 Retirement; Retirement Policies