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Does consumption decline at retirement? Evidence from repeated cross-section data for Germany

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  • Beznoska, Martin
  • Steiner, Viktor
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    Abstract

    The 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 crosssection 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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    Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2012/14.

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    Date of creation: 2012
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    Handle: RePEc:zbw:fubsbe:201214

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    1. 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.
    2. Milton Friedman, 1957. "Introduction to "A Theory of the Consumption Function"," NBER Chapters, in: A Theory of the Consumption Function, pages 1-6 National Bureau of Economic Research, Inc.
    3. Nancy D. Ruggles & Richard Ruggles, 1970. "INTRODUCTION to "The Design of Economic Accounts"," NBER Chapters, in: The Design of Economic Accounts, pages 1-7 National Bureau of Economic Research, Inc.
    4. Milton Friedman, 1957. "A Theory of the Consumption Function," NBER Books, National Bureau of Economic Research, Inc, number frie57-1.
    5. Nancy D. Ruggles & Richard Ruggles, 1970. "The Design of Economic Accounts," NBER Books, National Bureau of Economic Research, Inc, number rugg70-1.
    6. Schwerdt, Guido, 2005. "Why does consumption fall at retirement? Evidence from Germany," Economics Letters, Elsevier, Elsevier, vol. 89(3), pages 300-305, December.
    7. Orazio Attanasio & James Banks & Matthew Wakefield, 2004. "Effectiveness of tax incentives to boost (retirement) saving: theoretical motivation and empirical evidence," IFS Working Papers, Institute for Fiscal Studies W04/33, Institute for Fiscal Studies.
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