Does Consumption Decline at Retirement? Evidence from Repeated Cross-Section Data for Germany

26 Pages Posted: 19 Jul 2012

See all articles by Martin Beznoska

Martin Beznoska

German Institute for Economic Research (DIW Berlin)

Viktor Steiner

Free University of Berlin (FUB)

Date Written: June 1, 2012

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 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 individual 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.

Keywords: retirement consumption puzzle, life-cycle hypothesis, wealth effects, repeated cross-section data

JEL Classification: D12, D91, H31, H55

Suggested Citation

Beznoska, Martin and Steiner, Viktor, Does Consumption Decline at Retirement? Evidence from Repeated Cross-Section Data for Germany (June 1, 2012). DIW Berlin Discussion Paper No. 1220, Available at SSRN: https://ssrn.com/abstract=2111937 or http://dx.doi.org/10.2139/ssrn.2111937

Martin Beznoska (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstra├če 58
Berlin, 10117
Germany

Viktor Steiner

Free University of Berlin (FUB) ( email )

Van't-Hoff-Str. 8
Berlin, Berlin 14195
Germany

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