- Email: [email protected]
Do you need less money in retirement?
Journal Pre-proof Do you need less money in retirement? Martina Celidoni, Guglielmo Weber
PII: DOI: Reference:
S0165-1765(20)30047-1 https://doi.org/10.1016/j.econlet.2020.109026 ECOLET 109026
To appear in:
Economics Letters
Received date : 2 December 2019 Revised date : 28 January 2020 Accepted date : 5 February 2020 Please cite this article as: M. Celidoni and G. Weber, Do you need less money in retirement?. Economics Letters (2020), doi: https://doi.org/10.1016/j.econlet.2020.109026. This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. This version will undergo additional copyediting, typesetting and review before it is published in its final form, but we are providing this version to give early visibility of the article. Please note that, during the production process, errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.
© 2020 Published by Elsevier B.V.
*Highlights (for review)
Journal Pre-proof Title: Do you need less money in retirement?
lP repro of
Authors: Martina Celidoni, Guglielmo Weber Highlights:
rna
The literature has documented a drop in consumption at retirement in Italy The minimum amount of money needed to live comfortably but not in luxury also drops This evidence confirms that the retirement consumption puzzle is no puzzle after all
Jou
*Title Page
Journal Pre-proof Title: Do you need less money in retirement?
lP repro of
Authors: 1) Martina Celidoni (Corresponding author) Department of Economics and Management, University of Padua Via del Santo 33, 35122 Padua, Italy Phone: (+39) 049 827.4255 Fax: (+39) 049 827.421 [email protected]
2) Guglielmo Weber - Department of Economics and Management, University of Padua Via del Santo 33, 35122 Padua, Italy [email protected] - Institute for Fiscal Studies 7 Ridgmount Street London WC1E 7AE Abstract
rna
The literature has documented a one-off drop in consumption at retirement in Italy. We show that respondents’ subjective evaluation of the minimum amount of money needed “to live comfortably but not in luxury” drops at retirement as well. This finding supports the idea that, even if expenditure falls at retirement, this may have the same effect on money needed, hence no effect on the marginal utility of consumption. Keywords: Retirement consumption puzzle, minimum spending question, RDD
Jou
JEL Codes: D12, D91, J26, J14
*Manuscript Click here to view linked References
Journal Pre-proof
Do you need less money in retirement? Martina Celidoni1 and Guglielmo Weber1,2
Department of Economics and Management, University of Padua Via del Santo 33, 35122 Padua, Italy
lP repro of
1
2
Institute for Fiscal Studies 7 Ridgmount Street London WC1E 7AE
Abstract
The literature has documented a one-off drop in consumption at retirement in Italy. We show that respondents’ subjective evaluation of the minimum amount of money needed “to live comfortably but not in luxury” drops at retirement as well. This finding supports the idea that, even if expenditure falls at retirement, this may have the same effect on money needed, hence no effect on the marginal utility of consumption. Keywords: Retirement consumption puzzle, minimum spending question, RDD
Jou
rna
JEL Codes: D12, D91, J26, J14
This paper was presented at the IARIW 35th General Conference (Copenhagen, Denmark, August 2018) and the XXX SIEP Conference (Padua, Italy, September 2018). We are grateful for comments and suggestions made by participants. We thank especially John Sabelhaus, Thesia Garner, and Chiara Dal Bianco. This research was financed by MIUR (PRIN 2015FMRE5X_005).
1
Journal Pre-proof 1. Introduction
lP repro of
The key prediction of the life-cycle model is that individuals form intertemporal plans to smooth their marginal utility of consumption over the life course. The literature however has emphasized and documented a one-off drop in consumption at retirement. This appears inconsistent with the consumption-smoothing hypothesis by Modigliani and Brumberg (1954) and has therefore been labelled “the retirement consumption puzzle”. In the Italian case, Battistin et al. (2009) estimate in a regression discontinuity design setting a consumption drop at retirement of 9.8 percent for non-durable expenditure over the 1993-2004 period. In this paper, we analyse recently released Italian micro data that record the respondents’ subjective evaluation of the minimum amount of money needed “to live comfortably but not in luxury”. If individuals at retirement reduce expenditure, but not utility, we should also find that retirement is associated with a lower amount of money needed to easily make ends meet (“money needed” from now on). We estimate a 8.3 percent drop in money needed and a 9.8 percent drop in consumption for the period 2004-2016. The similarity of the estimates is confirmed when both outcomes are deflated by widely used equivalence scales. The paper unfolds as follows: section 2 describes the data used, section 3 presents the empirical strategy adopted, in section 4 we comment our results, section 5 concludes. 2. Data
Jou
rna
We use data drawn from the Survey on Household Income and Wealth provided by the Bank of Italy; this survey represents the main and most important source of information about income, consumption and wealth of Italian households. In the period we consider, the survey is conducted every two years. Data are provided to users in two versions: historical and annual. We use mainly the latter, with the exception of selected sociodemographic variables, such as education drawn from the historical dataset, to ensure harmonization over time in its definition. Following Battistin et al. (2009), we treat data as repeated cross sections. We take the head of the household to be male and include in the estimation sample couples and single men. Table A.1 and A.2 in the on-line Appendix report the summary statistics for the variables used in our analysis. Our main outcome of interest is the answer to the following question: ‘How much do you think a household like yours needs per month to live comfortably but not in luxury?’. In our sample the average amount of money needed for a two-person household is comparable to the average total expenditure for two-person households as recorded in the diary-based survey, run by the Italian Institute of Statistics, see Table A.3. Another key variable in our analysis is time to/since pension eligibility. It is defined based on age and seniority (accrued contribution years), that is self-reported in our dataset. Eligibility criteria, described in Appendix B, refer to the year when individuals received the first benefit if job pensioners, to the interview year for employed or self-employed. We exclude from our analysis first-time job seekers, unemployed, homemakers, non-job pensioners, students, conscripts and 2
Journal Pre-proof
lP repro of
“other”. We focus on male retirement due to the relatively low labour force participation by females. Table A.4 reports the sample selection procedure by survey year. We consider also non-durable consumption. Information on this topic is gathered through a recall catch-all question on total monthly spending, excluding expenditure to purchase valuables, cars, or for maintenance, allowances, gifts, extraordinary maintenance of dwelling, rental of dwelling, mortgage instalments, life insurance premiums, contributions to supplementary pension schemes. 3. Empirical strategy
Jou
rna
To account for the endogenous nature of the retirement decision, we exploit the discontinuity at the threshold for pension eligibility, following Battistin et al. (2009). In Figure 1, we report the proportion of retired heads by time to/since eligibility for the period analysed; the figure reveals that at eligibility there is a sizable jump in the proportion of retired heads. The strong sensitivity of retirement to eligibility is not surprising in the light of the features of the Italian public pension system.
Figure 1. Proportion of retired male heads by time to/since eligibility
We estimate parametrically the following: (3)
where h denotes the household and t the survey year. More precisely is the outcome at the household level – the logarithm of non-durable consumption and money needed -, is the household (male) head’s retirement status, whereas is time to/since eligibility for the same individual. We use eligibility status as instrument for retirement by specifying the following: 3
Journal Pre-proof
,
(4)
4. Estimation Results
lP repro of
where is a 0-1 dummy indicating whether the individual qualifies for a job-related pension. In all specifications, we allow for year-specific intercepts. We provide estimates for household heads having time to/since eligibility in between -10 and 10, but exclude those with S = 0 since Y could refer to pre- and post-retirement periods if retired. Standard errors are clustered at the running variable and survey year level.
In Table 1 column (2), we can see that money needed drops at retirement. That is, to maintain an acceptable living standard (or a given utility level), individuals after retirement need a lower amount of money (on average 8 percent less). We can see in column (4) that point estimates are of a comparable size when we include additional controls - age and age squared, education and geographical location - to increase the precision of our estimates (we show in Table A.5 that those controls vary smoothly around the cut-off). For the same period, we estimate a non-durable consumption drop of 9.8 percent, as in Battistin at al. (2009). See Table A.6 for further details.
Retired S S2/10 Additional controls Obs First stage Eligible
F-statistic
(2) IV -0.080** (0.035) -0.006*** (0.002) -0.001 (0.001)
rna
(1) OLS -0.115*** (0.012) -0.004*** (0.001) -0.001 (0.001) 12,365
12,365
(3) OLS -0.080*** (0.011) 0.007*** (0.001) -0.001 (0.001) X 12,365
(4) IV -0.083*** (0.029) 0.007*** (0.002) -0.001 (0.001) X 12,365
0.496*** (0.026)
0.500*** (0.027)
377.282
343.625
Table 1. The effect of retirement on money needed.
Jou
Notes: *** p<0.01, ** p<0.05, * p<0.1
This result provides additional evidence in favour of the idea that consumption drops upon retirement do not necessarily imply a drop in utility. Money needed may fall because home production of services becomes advantageous and retirees can use the increased leisure time to purchase goods more efficiently (see Aguiar and Hurst, 2005 among others). Robustness analyses confirm Table 1 results. As Moretti and Manacorda (2006) stress, parents’ pension eligibility plays a role in explaining children nest leaving in Italy. Therefore, changes in family composition upon retirement might explain the drop in consumption. We investigate whether this is the case. 4
Journal Pre-proof
Dep. Var.
Retired S S2/10
Obs
(1) Number of Components -0.143** (0.068) -0.042*** (0.005) 0.003 (0.003) 12,365
lP repro of
In Table 2 we use as outcomes household size, a dummy for the presence of a couple and the number of children whose age is 24 or lower / 25 or higher (the typical age when tertiary education finishes). Estimates in Table 2 show that household size decreases upon retirement because there is a reduction in the number of children aged 25 or more.
(2) Couple
(3) Number of children aged 24 or less
(4) Number of children aged 25 or more
0.004 (0.024) -0.001 (0.002) -0.001 (0.001)
-0.060 (0.076) -0.045*** (0.005) 0.025*** (0.003)
-0.136** (0.060) 0.012*** (0.004) -0.026*** (0.002)
12,365
12,365
12,365
Table 2. The effect of retirement on household composition. Notes: *** p<0.01, ** p<0.05, * p<0.1.
Jou
rna
To understand how this contributes in explaining the consumption/money needed drop, we provide in Table 3 additional estimates. As family changes are co-determined with retirement, including household composition controls in the equation would require additional instruments that are not readily available. We take into account possible economies of scale, by taking as dependent variables equivalent values of money needed (and consumption). In column (1) and (3) consumption and money needed are divided by the square root of the household size whereas, in column (2) and (4), we use the OECD-modified scale. Point estimates for money needed based on equivalent values are smaller, compared to what reported in Table 1, but negative and always significant at the 5 or 10 percent level. They imply that changes in household composition account at most for 40% of the decrease in money needed. Estimates of the drop in equivalized non-durable expenditure are also not statistically different from what Battistin et al. (2009) report. Robustness checks in terms of different polynomial in S or year bands confirm these results. (1)
Dep. Var. Retired S S2/10
(2)
Non-durable expenditure square root scale OECD scale -0.081** -0.066* (0.038) (0.038) 0.011*** 0.011*** (0.002) (0.002) -0.003 -0.002 (0.002) (0.002)
(3)
(4)
IV Money needed square root scale OECD scale -0.064** -0.049* (0.028) (0.028) 0.007*** 0.006*** (0.002) (0.002) 0.000 0.001 (0.001) (0.001) 5
Journal Pre-proof
Table 3. The effect of retirement on equivalent non-durable expenditure and money needed. Notes: Additional controls included. *** p<0.01, ** p<0.05, * p<0.1.
5. Conclusions
lP repro of
In this paper, we have taken a regression discontinuity design approach to investigate how retirement of the male head affects the minimum amount of money that households need to live comfortably but not in luxury in Italy. Even if expenditure falls at retirement, this may have no effect on the marginal utility of consumption, if consumers are more efficient in their shopping or if they stop spending on work-related goods and services. We find that the minimum amount of money needed decreases by 8.3 percent at retirement, nondurable consumption drops by 9.8 percent. This evidence supports the view that the retirement consumption puzzle is no puzzle after all, as argued by Hurst (2008) and Aguila et al. (2011), among others. References
Aguila, E., Attanasio, O., and Meghir, C., 2011. Changes in Consumption at Retirement: Evidence from Panel Data. The Review of Economics and Statistics, 93:1094-1099. Aguiar, M., and Hurst, E., 2005. Consumption versus Expenditure, Journal of Political Economy, 113: 919-948. Battistin, E., Brugiavini, A., Rettore, E., and Weber, G., 2009. The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach. American Economic Review 99: 2209-2226.
rna
Hurst, E., 2008. Understanding Consumption in Retirement: Recent Developments, in Recalibrating Retirement Spending and Saving, 29-45, edited by John Ameriks and Olivia Mitchell. Oxford: Oxford University Press.
Jou
Manacorda, M., and Moretti, E., 2006. Why Do Most Italian Youths Live with Their Parents? Intergeneretional Transfers and Household Structure. Journal of the European Economic Association, 4: 800-829. Modigliani, F. and R.H. Brumberg, 1954. Utility Analysis and the Consumption Function: An Interpretation of Cross-section Data. In Post-Keynesian Economics, edited by Kenneth K. Kurihara, 388–436. New Brunswick: Rutgers University Press.
6
PII: DOI: Reference:
S0165-1765(20)30047-1 https://doi.org/10.1016/j.econlet.2020.109026 ECOLET 109026
To appear in:
Economics Letters
Received date : 2 December 2019 Revised date : 28 January 2020 Accepted date : 5 February 2020 Please cite this article as: M. Celidoni and G. Weber, Do you need less money in retirement?. Economics Letters (2020), doi: https://doi.org/10.1016/j.econlet.2020.109026. This is a PDF file of an article that has undergone enhancements after acceptance, such as the addition of a cover page and metadata, and formatting for readability, but it is not yet the definitive version of record. This version will undergo additional copyediting, typesetting and review before it is published in its final form, but we are providing this version to give early visibility of the article. Please note that, during the production process, errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.
© 2020 Published by Elsevier B.V.
*Highlights (for review)
Journal Pre-proof Title: Do you need less money in retirement?
lP repro of
Authors: Martina Celidoni, Guglielmo Weber Highlights:
rna
The literature has documented a drop in consumption at retirement in Italy The minimum amount of money needed to live comfortably but not in luxury also drops This evidence confirms that the retirement consumption puzzle is no puzzle after all
Jou
*Title Page
Journal Pre-proof Title: Do you need less money in retirement?
lP repro of
Authors: 1) Martina Celidoni (Corresponding author) Department of Economics and Management, University of Padua Via del Santo 33, 35122 Padua, Italy Phone: (+39) 049 827.4255 Fax: (+39) 049 827.421 [email protected]
2) Guglielmo Weber - Department of Economics and Management, University of Padua Via del Santo 33, 35122 Padua, Italy [email protected] - Institute for Fiscal Studies 7 Ridgmount Street London WC1E 7AE Abstract
rna
The literature has documented a one-off drop in consumption at retirement in Italy. We show that respondents’ subjective evaluation of the minimum amount of money needed “to live comfortably but not in luxury” drops at retirement as well. This finding supports the idea that, even if expenditure falls at retirement, this may have the same effect on money needed, hence no effect on the marginal utility of consumption. Keywords: Retirement consumption puzzle, minimum spending question, RDD
Jou
JEL Codes: D12, D91, J26, J14
*Manuscript Click here to view linked References
Journal Pre-proof
Do you need less money in retirement? Martina Celidoni1 and Guglielmo Weber1,2
Department of Economics and Management, University of Padua Via del Santo 33, 35122 Padua, Italy
lP repro of
1
2
Institute for Fiscal Studies 7 Ridgmount Street London WC1E 7AE
Abstract
The literature has documented a one-off drop in consumption at retirement in Italy. We show that respondents’ subjective evaluation of the minimum amount of money needed “to live comfortably but not in luxury” drops at retirement as well. This finding supports the idea that, even if expenditure falls at retirement, this may have the same effect on money needed, hence no effect on the marginal utility of consumption. Keywords: Retirement consumption puzzle, minimum spending question, RDD
Jou
rna
JEL Codes: D12, D91, J26, J14
This paper was presented at the IARIW 35th General Conference (Copenhagen, Denmark, August 2018) and the XXX SIEP Conference (Padua, Italy, September 2018). We are grateful for comments and suggestions made by participants. We thank especially John Sabelhaus, Thesia Garner, and Chiara Dal Bianco. This research was financed by MIUR (PRIN 2015FMRE5X_005).
1
Journal Pre-proof 1. Introduction
lP repro of
The key prediction of the life-cycle model is that individuals form intertemporal plans to smooth their marginal utility of consumption over the life course. The literature however has emphasized and documented a one-off drop in consumption at retirement. This appears inconsistent with the consumption-smoothing hypothesis by Modigliani and Brumberg (1954) and has therefore been labelled “the retirement consumption puzzle”. In the Italian case, Battistin et al. (2009) estimate in a regression discontinuity design setting a consumption drop at retirement of 9.8 percent for non-durable expenditure over the 1993-2004 period. In this paper, we analyse recently released Italian micro data that record the respondents’ subjective evaluation of the minimum amount of money needed “to live comfortably but not in luxury”. If individuals at retirement reduce expenditure, but not utility, we should also find that retirement is associated with a lower amount of money needed to easily make ends meet (“money needed” from now on). We estimate a 8.3 percent drop in money needed and a 9.8 percent drop in consumption for the period 2004-2016. The similarity of the estimates is confirmed when both outcomes are deflated by widely used equivalence scales. The paper unfolds as follows: section 2 describes the data used, section 3 presents the empirical strategy adopted, in section 4 we comment our results, section 5 concludes. 2. Data
Jou
rna
We use data drawn from the Survey on Household Income and Wealth provided by the Bank of Italy; this survey represents the main and most important source of information about income, consumption and wealth of Italian households. In the period we consider, the survey is conducted every two years. Data are provided to users in two versions: historical and annual. We use mainly the latter, with the exception of selected sociodemographic variables, such as education drawn from the historical dataset, to ensure harmonization over time in its definition. Following Battistin et al. (2009), we treat data as repeated cross sections. We take the head of the household to be male and include in the estimation sample couples and single men. Table A.1 and A.2 in the on-line Appendix report the summary statistics for the variables used in our analysis. Our main outcome of interest is the answer to the following question: ‘How much do you think a household like yours needs per month to live comfortably but not in luxury?’. In our sample the average amount of money needed for a two-person household is comparable to the average total expenditure for two-person households as recorded in the diary-based survey, run by the Italian Institute of Statistics, see Table A.3. Another key variable in our analysis is time to/since pension eligibility. It is defined based on age and seniority (accrued contribution years), that is self-reported in our dataset. Eligibility criteria, described in Appendix B, refer to the year when individuals received the first benefit if job pensioners, to the interview year for employed or self-employed. We exclude from our analysis first-time job seekers, unemployed, homemakers, non-job pensioners, students, conscripts and 2
Journal Pre-proof
lP repro of
“other”. We focus on male retirement due to the relatively low labour force participation by females. Table A.4 reports the sample selection procedure by survey year. We consider also non-durable consumption. Information on this topic is gathered through a recall catch-all question on total monthly spending, excluding expenditure to purchase valuables, cars, or for maintenance, allowances, gifts, extraordinary maintenance of dwelling, rental of dwelling, mortgage instalments, life insurance premiums, contributions to supplementary pension schemes. 3. Empirical strategy
Jou
rna
To account for the endogenous nature of the retirement decision, we exploit the discontinuity at the threshold for pension eligibility, following Battistin et al. (2009). In Figure 1, we report the proportion of retired heads by time to/since eligibility for the period analysed; the figure reveals that at eligibility there is a sizable jump in the proportion of retired heads. The strong sensitivity of retirement to eligibility is not surprising in the light of the features of the Italian public pension system.
Figure 1. Proportion of retired male heads by time to/since eligibility
We estimate parametrically the following: (3)
where h denotes the household and t the survey year. More precisely is the outcome at the household level – the logarithm of non-durable consumption and money needed -, is the household (male) head’s retirement status, whereas is time to/since eligibility for the same individual. We use eligibility status as instrument for retirement by specifying the following: 3
Journal Pre-proof
,
(4)
4. Estimation Results
lP repro of
where is a 0-1 dummy indicating whether the individual qualifies for a job-related pension. In all specifications, we allow for year-specific intercepts. We provide estimates for household heads having time to/since eligibility in between -10 and 10, but exclude those with S = 0 since Y could refer to pre- and post-retirement periods if retired. Standard errors are clustered at the running variable and survey year level.
In Table 1 column (2), we can see that money needed drops at retirement. That is, to maintain an acceptable living standard (or a given utility level), individuals after retirement need a lower amount of money (on average 8 percent less). We can see in column (4) that point estimates are of a comparable size when we include additional controls - age and age squared, education and geographical location - to increase the precision of our estimates (we show in Table A.5 that those controls vary smoothly around the cut-off). For the same period, we estimate a non-durable consumption drop of 9.8 percent, as in Battistin at al. (2009). See Table A.6 for further details.
Retired S S2/10 Additional controls Obs First stage Eligible
F-statistic
(2) IV -0.080** (0.035) -0.006*** (0.002) -0.001 (0.001)
rna
(1) OLS -0.115*** (0.012) -0.004*** (0.001) -0.001 (0.001) 12,365
12,365
(3) OLS -0.080*** (0.011) 0.007*** (0.001) -0.001 (0.001) X 12,365
(4) IV -0.083*** (0.029) 0.007*** (0.002) -0.001 (0.001) X 12,365
0.496*** (0.026)
0.500*** (0.027)
377.282
343.625
Table 1. The effect of retirement on money needed.
Jou
Notes: *** p<0.01, ** p<0.05, * p<0.1
This result provides additional evidence in favour of the idea that consumption drops upon retirement do not necessarily imply a drop in utility. Money needed may fall because home production of services becomes advantageous and retirees can use the increased leisure time to purchase goods more efficiently (see Aguiar and Hurst, 2005 among others). Robustness analyses confirm Table 1 results. As Moretti and Manacorda (2006) stress, parents’ pension eligibility plays a role in explaining children nest leaving in Italy. Therefore, changes in family composition upon retirement might explain the drop in consumption. We investigate whether this is the case. 4
Journal Pre-proof
Dep. Var.
Retired S S2/10
Obs
(1) Number of Components -0.143** (0.068) -0.042*** (0.005) 0.003 (0.003) 12,365
lP repro of
In Table 2 we use as outcomes household size, a dummy for the presence of a couple and the number of children whose age is 24 or lower / 25 or higher (the typical age when tertiary education finishes). Estimates in Table 2 show that household size decreases upon retirement because there is a reduction in the number of children aged 25 or more.
(2) Couple
(3) Number of children aged 24 or less
(4) Number of children aged 25 or more
0.004 (0.024) -0.001 (0.002) -0.001 (0.001)
-0.060 (0.076) -0.045*** (0.005) 0.025*** (0.003)
-0.136** (0.060) 0.012*** (0.004) -0.026*** (0.002)
12,365
12,365
12,365
Table 2. The effect of retirement on household composition. Notes: *** p<0.01, ** p<0.05, * p<0.1.
Jou
rna
To understand how this contributes in explaining the consumption/money needed drop, we provide in Table 3 additional estimates. As family changes are co-determined with retirement, including household composition controls in the equation would require additional instruments that are not readily available. We take into account possible economies of scale, by taking as dependent variables equivalent values of money needed (and consumption). In column (1) and (3) consumption and money needed are divided by the square root of the household size whereas, in column (2) and (4), we use the OECD-modified scale. Point estimates for money needed based on equivalent values are smaller, compared to what reported in Table 1, but negative and always significant at the 5 or 10 percent level. They imply that changes in household composition account at most for 40% of the decrease in money needed. Estimates of the drop in equivalized non-durable expenditure are also not statistically different from what Battistin et al. (2009) report. Robustness checks in terms of different polynomial in S or year bands confirm these results. (1)
Dep. Var. Retired S S2/10
(2)
Non-durable expenditure square root scale OECD scale -0.081** -0.066* (0.038) (0.038) 0.011*** 0.011*** (0.002) (0.002) -0.003 -0.002 (0.002) (0.002)
(3)
(4)
IV Money needed square root scale OECD scale -0.064** -0.049* (0.028) (0.028) 0.007*** 0.006*** (0.002) (0.002) 0.000 0.001 (0.001) (0.001) 5
Journal Pre-proof
Table 3. The effect of retirement on equivalent non-durable expenditure and money needed. Notes: Additional controls included. *** p<0.01, ** p<0.05, * p<0.1.
5. Conclusions
lP repro of
In this paper, we have taken a regression discontinuity design approach to investigate how retirement of the male head affects the minimum amount of money that households need to live comfortably but not in luxury in Italy. Even if expenditure falls at retirement, this may have no effect on the marginal utility of consumption, if consumers are more efficient in their shopping or if they stop spending on work-related goods and services. We find that the minimum amount of money needed decreases by 8.3 percent at retirement, nondurable consumption drops by 9.8 percent. This evidence supports the view that the retirement consumption puzzle is no puzzle after all, as argued by Hurst (2008) and Aguila et al. (2011), among others. References
Aguila, E., Attanasio, O., and Meghir, C., 2011. Changes in Consumption at Retirement: Evidence from Panel Data. The Review of Economics and Statistics, 93:1094-1099. Aguiar, M., and Hurst, E., 2005. Consumption versus Expenditure, Journal of Political Economy, 113: 919-948. Battistin, E., Brugiavini, A., Rettore, E., and Weber, G., 2009. The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach. American Economic Review 99: 2209-2226.
rna
Hurst, E., 2008. Understanding Consumption in Retirement: Recent Developments, in Recalibrating Retirement Spending and Saving, 29-45, edited by John Ameriks and Olivia Mitchell. Oxford: Oxford University Press.
Jou
Manacorda, M., and Moretti, E., 2006. Why Do Most Italian Youths Live with Their Parents? Intergeneretional Transfers and Household Structure. Journal of the European Economic Association, 4: 800-829. Modigliani, F. and R.H. Brumberg, 1954. Utility Analysis and the Consumption Function: An Interpretation of Cross-section Data. In Post-Keynesian Economics, edited by Kenneth K. Kurihara, 388–436. New Brunswick: Rutgers University Press.
6