Elsevier

Journal of Health Economics

Volume 57, January 2018, Pages 45-59
Journal of Health Economics

Your retirement and my health behavior: Evidence on retirement externalities from a fuzzy regression discontinuity design

https://doi.org/10.1016/j.jhealeco.2017.10.005Get rights and content

Abstract

This paper presents evidence on intra-household retirement externalities by assessing the causal effect of spousal retirement on various health behaviors and health status across 19 European countries. We identify partner's and own retirement effects by applying a fuzzy regression discontinuity design using retirement eligibility as exogenous instruments for spousal and own retirement status. We find significant increases in the frequency and intensity of alcohol consumption combined with a significant decrease in moderate physical activities as a response to partner's retirement. In line with the existing literature, we find that own retirement has significant positive effects on engaging in moderate and vigorous physical activities but also leads to a significant increase in the frequency of alcohol intake. Overall, subjective health is negatively affected by spousal retirement and positively by own retirement.

Introduction

Retirement related reforms and legislation have been subjected to great debate particularly in the developed world where a rapidly ageing population is posing considerable challenges to the affordability of pension systems. Simultaneous increases in life expectancy have increased costs for the treasuries. For example, the average amount of time spent in retirement across OECD countries has increased from 11 years in 1970 to 18 years in 2012 for men, and from 15 years to 22.5 years for women in the same period (OECD, 2014). Concurrently, public expenditures on pensions also increased in most OECD countries over the past years, with some countries even doubling them relative to national income (OECD, 2014). As a result, many countries have been contemplating changes in official retirement ages and are aiming to raise them in order to secure the viability of statutory social security funds.

There is a growing consensus that retirement reforms, especially changes in retirement age, should carefully account for adverse social and economic effects arising due to individuals retiring either earlier or later, and any actions that alter current policies must discuss both long-term and short-term effects. While the usual focus of economists is largely on the effects of retirement on income and consumption behavior (Charles, 2002, Battistin et al., 2009), much of the recent literature has now started to focus on other broader outcomes such as leisure activities (Stancanelli and Soest, 2016), home production (Stancanelli and Soest, 2012), cognitive abilities (Mazzonna and Peracchi, 2012) and health and health behavior (Coe and Lindeboom, 2008, Neumann, 2008, Johnston and Lee, 2009, Coe and Zamarro, 2011, Behncke, 2012, Insler, 2014, Eibich, 2015). Such broader outcomes are now gaining a foothold in the political debates on retirement legislations and it is a growing view that if effective retirement policies are to be framed, different aspects of life that retirement affects must be considered. However, one aspect that has largely been ignored within this strand of literature is the assessment of externalities arising due to retirement.

It is surprising that such externalities have not received much attention in the literature since there are several reasons why we believe these would exist. It is unanimously agreed that retirement is an important life changing event which can be particularly stressful to the retirees and those around them through spillover effects (Wheaton, 1990, Coe and Zamarro, 2011). Even though a single entity retires, it is clear that retirement sets in motion a sequence of events that have interaction effects with others in the household and thus may affect the behavior of others (Wheaton, 1990). Further, the propensity of an individual to behave in a certain way may vary with the characteristics and the behavior of other individuals around (Manski, 1993). Indeed there is overwhelming evidence on such endogenous and exogenous social effects; where endogenous effects refer to the behavior of an individual varying with the behavior of others, and exogenous effects refer to the behavior of an individual varying with the characteristics of others (see Manski, 1993, Banerjee, 1992, Bikhchandani et al., 1992, Duflo and Saez, 2002, Duflo and Saez, 2003). There is a growing body of both theoretical and empirical literature that identifies such effects in education, savings and retirement decisions, technology adoption, etc. (Bikhchandani et al., 1992, Duflo and Saez, 2002, Duflo and Saez, 2003, Vergari, 2004). While the literature on this topic largely discusses group behavior and group characteristics either in terms of groups of individuals or groups of firms, we attempt to draw on this literature and apply it to the behavior of individuals within a household. Following a similar line of reasoning, it seems plausible to presume that the behavior or characteristics of individuals directly affect the behavior of others within the household imposing externalities on others (either positive or negative). While in the case of groups these are often termed herd externalities (Banerjee, 1992), in the household case we may call them intra-household externalities.1

The identification of such retirement related intra-household externalities, specifically in terms of health behaviors, and their implications on health is the main contribution of this paper. We identify the causal effect of being retired (a characteristic of an individual) on the health behaviors of the other individual (partner) in the household. To this end we use a fuzzy regression discontinuity (RD) design which accounts for the endogeneity of the retirement decision by exploiting the legislation on retirement eligibility, which makes the probability of being in retirement a discontinuous function of age. We use data from four waves of the Survey of Health, Ageing and Retirement in Europe (SHARE) for 19 European countries.

First, we find that the probability to retire shows a significant discontinuity at the country specific retirement age thus supporting our identification strategy at the outset. Second, our RD estimates show that spousal retirement has a positive and significant effect on the frequency of alcohol intake, the number of drinks consumed per day, binge drinking and finally on the likelihood of having a drinking problem. Also, our analysis provides evidence for a significant decrease in moderate physical activity but no effect on vigorous physical activity. In contrast, we find that own retirement has a significant and positive effect on engaging in activities which require moderate or vigorous levels of energy. At the same time, own retirement also leads to an increase in the frequency of alcohol intake, but not the amount consumed.

On exploring heterogeneity in the results by own retirement status, we do not find a statistically significant difference in any of the health behaviors between individuals with and without an already retired partner. However, our estimates indicate a significant increase in cigarettes smoked per day among those with a smoking partner. Overall, we find that partner's retirement affects subjective health negatively and own retirement shows a positive effect on subjective health. The results are robust to a battery of sensitivity tests and different window widths. In addition, the standard RD validity checks provide no evidence for violations of local random assignment reinforcing our identification strategy.

The remainder of the paper is organized as follows: In Section 2 we discuss relevant related literature. Section 3 describes the data and variables used in the analysis. In Section 4, we present our identification strategy and RD validity checks. Section 5 presents our main results and sheds light on effect heterogeneity. Section 6 turns the focus to robustness checks, placebo tests and possible anticipation effects. We draw final conclusions and discuss policy implications in Section 7.

Section snippets

Relevant literature

This paper contributes to the literature that assesses the different determinants of specific risky health behaviors such as smoking, alcohol consumption, and physical activity. Several factors such as income, education, advertising and time preferences have been analyzed in the past as important determinants of such health behaviors (for a comprehensive review see Cawley and Ruhm, 2011). We extend this literature by analyzing the impact of spousal retirement on health status and risky

Data

Much of the evidence on the effects of retirement stems from the US, in particular from the Health and Retirement Study (HRS) due to the longitudinal and detailed nature of the survey. For Europe, the Survey of Health, Ageing and Retirement in Europe (SHARE) (Börsch-Supan, 2016a, Börsch-Supan, 2016b, Börsch-Supan, 2016c, Börsch-Supan, 2016d), modeled largely around the HRS, provides an excellent opportunity to study retirement effects. The health effects of retirement have been studied using

Identification strategy

The main purpose of this paper is to identify the causal effect of spousal retirement on the health behavior of the other partner. Any identification strategy that successfully aims at isolating such causal effects needs to address the endogeneity in the partner's retirement status. Endogeneity in our context could arise due to two sources: First, omitted variable bias, e.g., the possibility of grandparenting may make one more likely to consider retirement (positive correlation) and moving

Results

First, we present and discuss the results of the effect of partner's retirement on each of the health behaviors. Then, we discuss the results of own retirement on each of the health behaviors placing it in context of the findings from previous literature on the topic. Next, in order to examine what the effects on health behavior mean for overall health, we assess the net effects of partner's and own retirement on health. We present the estimated spousal and own retirement effects for two model

Robustness checks

In the last section we showed that our findings are robust to different model specifications. We further assess the robustness of our results with respect to different window sizes around the retirement cutoff, non-linear functional forms in the relationship between age and the outcome variables and the retirement rate, the inclusion of further control variables and variations in the estimation sample, as well as different definitions of retirement. All robustness checks can be found in

Conclusion

In this paper we explore intra-household retirement externalities by assessing the causal impact of retirement of a partner on the health behavior and health status of the other partner. Our evidence, stemming from a regression discontinuity design that exploits discontinuities in retirement created by official retirement age thresholds of countries, suggests that indeed retirement of one partner affects subjective health and health behaviors of the other partner over and above the effects of

Acknowledgements

We are grateful to Stefan Boes, Markus Reisinger, Marisa Miraldo, Michael Gerfin, Matteo Galizzi, Simone Ghislandi, Renata Kosova, Kaspar Wüthrich, Sonja Kassenboehmer, Ines Berniell, and Eugenio Zuchelli for helpful comments at an early stage of this paper. We also thank participants at the Royal Economic Society Junior Researcher Symposium, Health Economists’ Study Group meeting, Australian Health Economics Society doctoral workshop, and the Center for Health, Policy and Economics seminar

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