Life‐Cycle Expenditure and Retirees' Cost of Living1. (23rd August 2018) - Lluberas, Rodrigo
Abstract: The aim of this paper is twofold. First, we document the expenditure life‐cycle profile in the United Kingdom and show how differences in the consumption bundle of retirees and workers translate into different inflation experiences. Albeit different in given years, the inflation experienced by the two groups is not significantly different over a long time period. We also show how the distribution of household inflation evolved over time, with particular emphasis on the period around the latest financial crisis. Second, we estimate an Exact Affine Stone Index (EASI) demand system and compute the change in the cost of living and the substitution effect for both retirees and workers for the period 1990–2014. Finally, we show how pension income would evolve during that period under three alternative indexation measures for different cohorts of retirees. The indexation measure that results in the highest pension income depends on the time of retirement.