Household saving in Mexico

Abstract

In this paper we use data from four recent household income and expenditure surveys to examine whether observed consumption and saving profiles in Mexico are consistent with some implications of the basic life cycle theory using individual age cohorts. In particular we find that household consumption tracks income closely and that older households do not dissave as predicted by this model. These results are similar with empirical work for other countries. We also explore some hypothesis that have been advanced to explain the recent decline in the private saving rate in Mexico. In particular we analyze the impact of financial liberalization on liquidity constrained consumers as well as the effect of capital gains changes on real estate and financial assets on household saving. Our results offer some evidence for the argument that the relaxation of credit constraints have been a contributing factor to recent saving decline.