Households’ simultaneous consumption spending and home production responses to retirement

Do retirees substitute consumption spending?

We analyze the effect of spouses’ retirement on simultaneous consumption spending and home production decisions. For causal identification, we exploit discontinuities in US Social Security benefits claiming using a Regression Discontinuity Design. Our results suggest that the consumption drop due to retirement is only partially compensated by an increase in home production of the retiring household member. Home production can make up for losses in spending categories that are well-substitutable by home production, although only 11% of total consumption spending, but there is no evidence that households fully replace these categories by home produced counterparts.

JEL codes: C33, D1, H55, J22, J26
Keywords: Regression Discontinuity, Retirement, Consumption, Home production, Couples, Panel data