The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach

33 Pages Posted: 23 Nov 2007

See all articles by Erich Battistin

Erich Battistin

Institute for Fiscal Studies (IFS)

Agar Brugiavini

Ca Foscari University of Venice - Dipartimento di Economia

Enrico Rettore

University of Trento; IRVAPP; IZA

Guglielmo Weber

University of Padova - Department of Economics; Centre for Economic Policy Research (CEPR); Institute for Fiscal Studies (IFS)

Date Written: September 2007

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 design 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

JEL Classification: D9, E2

Suggested Citation

Battistin, Erich and Brugiavini, Agar and Rettore, Enrico and Weber, Guglielmo, The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach (September 2007). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 27/07, Available at SSRN: https://ssrn.com/abstract=1031912 or http://dx.doi.org/10.2139/ssrn.1031912

Erich Battistin (Contact Author)

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Agar Brugiavini

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

Enrico Rettore

University of Trento ( email )

Via Verdi 26
Trento, 28122
Italy
+39 0461 281316 (Phone)

IRVAPP ( email )

Via Santa Croce 77
Trento, I-38122
Italy

IZA ( email )

Guglielmo Weber

University of Padova - Department of Economics ( email )

via Del Santo 33
Padova, 35123
Italy
+39 049 827 4271 (Phone)
+39 049 827 4221 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for Fiscal Studies (IFS) ( email )

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

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