The Consumption and Wealth Effects of an Unanticipated Change in Lifetime Resources

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: In 2000 Italy replaced its traditional system of severance pay for public employees with a new system. Under the old regime, severance pay was proportional to the final salary before retirement; under the new regime it is proportional to lifetime earnings. This reform entails substantial losses for future generations of public employees, in the range of €20,000-30,000, depending on seniority. Using a difference-in-difference framework, we estimate the impact of this unanticipated change in lifetime resources, on the current consumption and wealth accumulation of employees affected by the reform. In line with theoretical simulations, we find that each euro reduction in severance pay reduces the average propensity to consume by 3 cents and increases the wealth-income ratio by 0.32. The response is stronger for younger workers and for households where both spouses are public sector employees.

Keywords: Severance Pay; Consumption; Wealth Accumulation (search for similar items in EconPapers)
JEL-codes: D12 D91 E21 (search for similar items in EconPapers)
Date: 2014-03-05, Revised 2014-07-23
New Economics Papers: this item is included in nep-age, nep-eur and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Management Science, 2016, May, 62(5), 1458–1471

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Related works:
Journal Article: The Consumption and Wealth Effects of an Unanticipated Change in Lifetime Resources (2016)
Working Paper: The Consumption and Wealth Effects of an Unanticipated Change in Lifetime Resources (2015)
Working Paper: The consumption and wealth effects of an unanticipated change in lifetime resources (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:sef:csefwp:354

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