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The Retirement Consumption Puzzle Effect in Indonesia: Evidence from IFLS 4 and 5

Author

Listed:
  • Margareta Vania Putri

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

  • Catur Sugiyanto

    (Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada)

Abstract

This study aims to see whether there is a decline in consumption in retirement which is not in line with the life cycle hypothesis (consumption puzzle effect). Previous studies revealed that consumption has shifted when entering retirement due to efficient spending. This research analyzes the consumption pattern of the Indonesian elderly peculiarly in the frame of the retirement consumption puzzle. Utilizing data from the Indonesian Family Life Survey (IFLS) wave 4 and 5 from 2007 and 2014, and this study constructed panel data with a total sample of 2,556 individuals. The Difference in Differences (DiD) method is used to see whether the change in labor status toward retirement causes a decrease in household consumption. As robustness, this study also uses the division of age categories. The results of this study indicate that there is a retirement consumption puzzle in Indonesia, with a decrease of 19.9% in total expenditure per capita. The consumption decrease in retirement indicates government should consider pension funds and create social security programs to maintain the welfare of the elderly.

Suggested Citation

  • Margareta Vania Putri & Catur Sugiyanto, 2023. "The Retirement Consumption Puzzle Effect in Indonesia: Evidence from IFLS 4 and 5," Gadjah Mada Economics Working Paper Series 202303004, Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada.
    • Handle: RePEc:gme:wpaper:202303004
    as

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    File URL: https://econworkingpaper.feb.ugm.ac.id/download/working_paper/202303004.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Retirement; Household Consumption; Life Cycle Hypothesis; DiD;
    All these keywords.

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • K31 - Law and Economics - - Other Substantive Areas of Law - - - Labor Law

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