Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/142757 
Year of Publication: 
2016
Series/Report no.: 
SOEPpapers on Multidisciplinary Panel Data Research No. 849
Publisher: 
Deutsches Institut für Wirtschaftsforschung (DIW), Berlin
Abstract: 
We revisit the alleged retirement consumption puzzle. According to the life-cycle theory, foreseeable income reductions such as those around retirement should not affect consumption. However, we first recall that given higher leisure endowments after retirement, the theory does predict a fall of total market consumption expenditures. In order not to mistake this predicted drop for a puzzle we focus on housing consumption which can be plausibly regarded as complementary to leisure, and we control for the leisure change in our empirical specifications, using micro data for Germany (SOEP), where housing expenditures are observable as rents for the majority (60%), as well as dwelling relocations. We still find significant negative impacts of the retirement status on housing consumption, which is hard to reconcile with the life-cycle theory. For retirees we also find significant effects of the income reduction at retirement on housing. However, the effects are small in quantitative terms, given the lock-in nature of past housing decisions.
Subjects: 
consumption smoothing
retirement-consumption puzzle
SOEP
JEL: 
D91
E21
Document Type: 
Working Paper

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