Retirement Shock and Urban Household Consumption: An Empirical Study Based on the Breakpoint Regression Design

Abstract

Abstract: Based on the data of China Health and Pension Tracking Survey and the breakpoint regression design, this paper conducts a study of the impact of retirement shock on household consumption in China. The results show that retirement can significantly reduce household non-durable goods consumption by 31.2%. After removing work-related consumption, home food consumption and expenditures on leisure, culture, education and entertainment, the other non-durable goods consumption has not decreased significantly. The retirement shock leads to a significant change on the household consumption structure. It makes a significant increase in health care spending, and a significant increase in the proportion of non-basic consumption, which helps to optimize the consumption structure. The results of further research indicate that retirement shock has significant heterogeneous effects on households with different levels of consumption and different consumption structures. The impact of retirement shock on the families at the left end of the distribution of health care consumption and the families at the right end of the distribution of non-basic consumption is even more significant. Therefore, it is recommended to formulate a more robust social security system, promote the upgrading of the consumption structure of the elderly, and meet the multi-level material and cultural consumption needs of the elderly.

Key words: retirement shock, household consumption, aging, breakpoint regression design

ZHENG Chao, WANG Xinjun. Retirement Shock and Urban Household Consumption: An Empirical Study Based on the Breakpoint Regression Design[J]. JOURNAL OF CONTEMPORARY FINANCE AND ECONOMICS, 2021, 0(1): 18-31.

References

[1] Aguiar M., Hurst E.Consumption vs. Expenditure[J]. Journal of Political Economy, 2005, 113(5): 919-948.
[2] Aguiar M., Hurst E.Deconstructing Life-Cycle Expenditures[J]. Journal of Political Economy, 2013, 121(3): 437-492.
[3] Aguila E., Orazio A., Costas M.Changes in Consumption at Retirement: Evidence from Panel Data[J]. Review of Economics and Statistics, 2011, 93(3): 1094-1099.
[4] Banks J., Blundell R., Tanner S.Is there a Retirement-Savings Puzzle?[J]. American Economic Review, 1998, 88(4): 769-788.
[5] Battistin E., Brugiavini A., Rettore E., Weber G.The Retirement Consumption Puzzle: Evidence from a Regression Discontinuity Approach[J]. American Economic Review, 2009, 99(5): 2209-2226.
[6] Behncke S.Does Retirement Trigger Ill Health?[J]. Health Economics, 2012, 21(3): 282-300.
[7] Bernheim B.D., Skinner J., Weinberg S. What Accounts for the Variation in Retirement Wealth among US House-holds[J]. American Economic Review, 2001, 91(4): 832-857.
[8] Chen Q.H., Deng T. H., Bai J. F., He X. R. Understanding the Retirement-Consumption Puzzle through the Lens of Food Consumption--Fuzzy Regression Discontinuity Evidence from Urban China[J]. Food Policy, 2017, 73(12): 45-61.
[9] Du L. Shen J., Pan C.Impact of Rising House Price on Urban Residents' Average Propensity to Consume--An Empirical Study Based on the Data of Shanghai Household Survey[J]. Journal of Financial Research, 2013, (3):44-57.
[10] Fisher J.D., Johnson D. S., Marchand J., Smeeding T. M., Torrey B. B. The Retirement Consumption Conundrum:Evidence from a Consumption Survey[J]. Economic Letters, 2008, 99(3): 482-485.
[11] Haider S.J., Stephens M. J. Is there a Retirement-Consumption Puzzle? Evidence Using Subjective Retirement Ex-pectations[J]. Review of Economics and Statistics, 2007, 89(2): 247-264.
[12] Hamermesh D.S. Consumption during Retirement: The Missing Link in the Life-Cycle[J]. Review of Economics and Statistics, 1984, 66(1): 1-7.
[13] Hurd M.D., Rohwedder S. The Retirement Consumption Puzzle: Actual Spending Change in Panel Data[R]. NBER Working Paper, No.13929, 2008.
[14] Lei X., Tan L., Zhao Y.Does Retirement Impact Health?[J]. China Economic Quarterly, 2010, (4):1539-1558.
[15] Li H., Shi X., Wu B.A Study on the Consumption Behavior of Chinese Residents before and after Retirement[J]. China Economic Quarterly, 2015, (1): 117-134.
[16] McCrary J. Manipulation of the Running Variable in the Regression Discontinuity Design: A Density Test[J]. Journal of Econometrics, 2008, 142(2): 698-714.
[17] Moreau N., Stancanelli E.Household Consumption at Retirement: A Regression Discontinuity Study on French Data[J]. Annals of Economics and Statistics, 2015, (117-118): 253-276.
[18] Shea J.Union Contracts and the Life-Cycle/Permanent-Income Hypothesis[J]. American Economic Review, 1995, 85(1): 186-200.
[19] Wang C., Du Y. Life Cycle, Age Structure and Household Consumption Debt Behavior in China[J]. Contemporary Finance & Economics, 2019, (3):58-69.
[20] Wang Y.Aging of Population and Urban Household Consumption Rate--An Empirical Study Based on Dynamic Stochastic General Equilibrium Model[J]. Contemporary Finance & Economics, 2020, (3): 16-25.
[21] Zhang B., Lu W.Is There Retirement Consumption Puzzle among Chinese Households?--An Empirical Test Based on CHARLS Data[J]. Studies in Labor Economics, 2014, (4):103-120.
[22] Zhang K., Jiang Q.Aging, Retirement and Consumption--Does China Have the Retirement-Consumption Puzzle?[J]. Population & Economics, 2013, (5): 10-18.