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The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach

  • Erich Battistin
  • Agar Brugiavini
  • Enrico Rettore
  • Guglielmo Weber

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. (JEL D91, E21, J26, J31)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 5 (December)
Pages: 2209-26

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:2209-26
Note: DOI: 10.1257/aer.99.5.2209
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