Demand Patterns Around Retirement: Evidence from Spanish Panel Data

One of the explanations of the consumption-retirement puzzle put forward in the literature is non-separabilities between work and consumption. In this paper we examine demand patterns before and after retirement, using a Spanish panel data set on household expenditures, in which we follow households across the retirement
threshold. Usually, two incidents occur simultaneously at retirement: (1) Income falls significantly and (2) leisure time increases. We provide evidence that there is no such income fall for the retiring households in the Spanish data. This means that what we identify with this data is the pure impact of retirement. We examine the effect of retirement on budget shares. We find no significant effect on any commodity groups (except on medicines, which are subsidized upon retirement in Spain), i.e. we find no evidence of non-separabilities between work and consumption at retirement.