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Vol 39 No 1 (2024): January

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Submitted
Jul 9, 2022
Accepted
Apr 18, 2023
Published
Jan 18, 2024
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The Retirement Consumption Puzzle Effect in Indonesia: Evidence from IFLS 4 and 5

https://doi.org/10.22146/jieb.v39i1.5033
Margareta Vania Putri
Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada,
Catur Sugiyanto
catur@ugm.ac.id
Department of Economics, Faculty of Economics and Business, Universitas Gadjah Mada

Corresponding Author(s) : Catur Sugiyanto

catur@ugm.ac.id

Journal of Indonesian Economy and Business, Vol 39 No 1 (2024): January

Abstract

Introduction/Main Objectives: This study aims to see whether the retirement consumption puzzle occurs in Indonesia. The retirement consumption puzzle refers to when there is a decline in consumption in retirement which is not in line with the life-cycle hypothesis. Background Problems: Previous studies have revealed that consump­tion shifts 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. Novelty: There is a lack of studies on the effect of retirement on consumption by Indonesian retirees and prior research has focused on the impact of retirement on household expenditure. Research Methods: This study uses data from the Indonesian Family Life Survey (IFLS) wave 4 and 5 from the years 2007 and 2014. It uses panel data and the total sample is 2,556. It also uses the difference in differences (DiD) method to see whether the change in labor status toward retirement causes a decrease in consumption in households in Indonesia. Then, this study also uses the division of age categories as the robustness check. Finding/Results: The results of this study show that there is a retirement consumption puzzle in Indonesia indicated by a decrease of 19.9% in total expenditure per capita. Conclusion: The consumption decrease in retirement demons­trates that the government should consider pension funds and create social security programs to maintain the welfare of elderly people.

Keywords

retirement household consumption life cycle hypothesis DiD
Putri, M. V., & Sugiyanto, C. (2024). The Retirement Consumption Puzzle Effect in Indonesia: Evidence from IFLS 4 and 5. Journal of Indonesian Economy and Business, 39(1), 1-27. https://doi.org/10.22146/jieb.v39i1.5033
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