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Abstract

This study analyzes empirically the direct effects of income changes on the elderly and pensioners’ spending behavior. The identification method exploits the introduction of a new pension system in Spain during the 1980s and 1990s and constructs a narrative series of legislated pension changes, which is used in an instrumental setting (CQIV). My findings imply that increases in the average pension have strong positive effects on pensioner spending, particularly on the pensioners with the highest levels of expenditure, income, and wealth.