The Consumption and Wealth Effects of an Unanticipated Change in Lifetime Resources

CFS Working Paper No. 507

37 Pages Posted: 22 Jun 2015

See all articles by Tullio Jappelli

Tullio Jappelli

University of Naples Federico II - Department of Economics; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI); Center for Studies in Economics and Finance - CSEF

Mario Padula

University "Ca' Foscari" of Venice; CSEF

Multiple version iconThere are 3 versions of this paper

Date Written: June 2015

Abstract

In 2000 Italy replaced its traditional system of severance pay for public employees with a new system. Under the old regime, severance pay was proportional to the final salary before retirement; under the new regime it is proportional to lifetime earnings. This reform entails substantial losses for future generations of public employees, in the range of €20,000-30,000, depending on seniority. Using a difference-in-difference framework, we estimate the impact of this unanticipated change in lifetime resources, on the current consumption and wealth accumulation of employees affected by the reform. In line with theoretical simulations, we find that each euro reduction in severance pay reduces the average propensity to consume by 3 cents and increases the wealth-income ratio by 0.32. The response is stronger for younger workers and for households where both spouses are public sector employees.

Keywords: Severance Pay, Consumption, Wealth Accumulation

JEL Classification: D12, D91, E21

Suggested Citation

Jappelli, Tullio and Padula, Mario, The Consumption and Wealth Effects of an Unanticipated Change in Lifetime Resources (June 2015). CFS Working Paper No. 507. Available at SSRN: https://ssrn.com/abstract=2621387 or http://dx.doi.org/10.2139/ssrn.2621387

Tullio Jappelli (Contact Author)

University of Naples Federico II - Department of Economics ( email )

Via Cintia - Monte S. Angelo
Napoli, 80126
Italy

HOME PAGE: http://www.csef.it/people/jappelli.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

HOME PAGE: http://www.cepr.org/researchers/details/rschcontact.asp?IDENT=106354

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Center for Studies in Economics and Finance - CSEF

84084 Fisciano, Salerno
Italy
+39 089 963 165 (Phone)
+39 089 963 169 (Fax)

HOME PAGE: http://www.csef.it/people/jappelli.htm

Mario Padula

University "Ca' Foscari" of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy
+390412349181 (Phone)
+390412349176 (Fax)

CSEF

Via Don Melillo I
Fisciano, Salerno, 84084
Italy

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