The Life-Cycle Hypothesis Revisited: Evidence on Housing Consumption after Retirement
AbstractAccording to the life-cycle theory of consumption and saving, foreseeable retirement events should not reduce consumption. Whereas some consumption expenditures may fall when goods are self-produced (given higher leisure after retirement), this argument applies especially to housing consumption which can hardly be substituted by home production. We test this hypothesis using micro data for Germany (SOEP) and find that income reductions when entering retirement have a negative effect on housing expenditures for tenants. For some econometric specifications, this effect is significantly stronger than the one of income changes at other times. While this result suggests that the strict consumption-smoothing hypothesis is violated for the subgroup of non-home owners (60% in Germany), the effect is quantitatively small, which explains the ambiguity of previous findings.
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Bibliographic InfoPaper provided by DIW Berlin, The German Socio-Economic Panel (SOEP) in its series SOEPpapers on Multidisciplinary Panel Data Research with number 339.
Length: 30 p.
Date of creation: 2010
Date of revision:
consumption smoothing; retirement-consumption puzzle; SOEP;
Other versions of this item:
- Miriam Beblo & Sven Schreiber, 2010. "The Life-Cycle Hypothesis Revisited: Evidence on Housing Consumption after Retirement," IMK Working Paper 14-2010, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-AGE-2010-12-11 (Economics of Ageing)
- NEP-ALL-2010-12-11 (All new papers)
- NEP-URE-2010-12-11 (Urban & Real Estate Economics)
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