The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach

Author: Battistin Erich   Brugiavini Agar   Rettore Enrico   Weber Guglielmo  

Publisher: American Economic Association

ISSN: 0002-8282

Source: The American Economic Review, Vol.99, Iss.5, 2009-12, pp. : 2209-2226

Disclaimer: Any content in publications that violate the sovereignty, the constitution or regulations of the PRC is not accepted or approved by CNPIEC.

Previous Menu Next

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.