1 Department of Economics and Business Economics, Aarhus BSS, Aarhus University2 Department of Economics and Business Economics, Aarhus BSS, Aarhus University
Durables yield services through life but are also a store of value and both features may have important implications for savings and retirement decisions. Durables also affect bequest and thus induce intergenerational transfers. We show that allowing explicitly for durables has important implications for retirement decisions and responses to various changes in the environment. An improvement in the possibility of freeing housing capital makes the old retire earlier (income effect) while the young plan to retire later since they increase housing demand and reduce financial savings. Considering welfare in stationary equilibrium, we find that a redution in wealth locking-in in durables is not necessarily welfare improving due to the effects on bequest. From a social welfare perspective, individuals tend to choose too much financial savings, too little durable acquisition and too early retirement.
Journal of Population Economics, 2014, Vol 27, Issue 3, p. 825-840