Does Consumption Decline at Retirement?: Evidence from Repeated Cross-Section Data for Germany
AbstractThe life-cycle hypothesis implies that consumption would not decline at retirement. However, several studies found relevant declines in food consumption after retirement for the United States. Others concluded that this contradiction of the life-cycle hypothesis is solved by allowing for broader measures of consumption than food. Using repeated cross-section data for Germany, this paper analyzes the retirement consumption puzzle for the German case. For our broadest consumption measure, which includes the flow of durables' consumption, we find, on average, no significant consumption decline at retirement. This also holds if the potential endogeneity of indidual retirement is controlled for in instrumental variable regressions. We also find heterogeneity in retirement effects among birth cohorts, the level of household wealth, and the level of consumption, but these effects do not support the hypothesis that retirement is associated with a strong reduction of consumption among poorer households.
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Bibliographic InfoPaper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 1220.
Length: 24 p.
Date of creation: 2012
Date of revision:
Retirement consumption puzzle; life-cycle hypothesis; wealth effects; repeated cross-section data;
Find related papers by JEL classification:
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-07-14 (Economics of Ageing)
- NEP-ALL-2012-07-14 (All new papers)
- NEP-DEM-2012-07-14 (Demographic Economics)
- NEP-EUR-2012-07-14 (Microeconomic European Issues)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Johnathan Fisher & David S. Johnson & Joseph Marchand & Timothy M. Smeeding & Barbara Boyle Torrey, 2005.
"The Retirement Consumption Conundrum: Evidence from a Consumption Survey,"
Working Papers, Center for Retirement Research at Boston College
wp2005-14, Center for Retirement Research, revised Dec 2005.
- Fisher, Jonathan D. & Johnson, David S. & Marchand, Joseph & Smeeding, Timothy M. & Torrey, Barbara Boyle, 2008. "The retirement consumption conundrum: Evidence from a consumption survey," Economics Letters, Elsevier, vol. 99(3), pages 482-485, June.
- Schwerdt, Guido, 2005. "Why does consumption fall at retirement? Evidence from Germany," Economics Letters, Elsevier, vol. 89(3), pages 300-305, December.
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- Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
- Nancy D. Ruggles & Richard Ruggles, 1970. "The Design of Economic Accounts," NBER Books, National Bureau of Economic Research, Inc, number rugg70-1.
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