Wage shocks and consumption variability in Mexico during the 1990s

This paper presents evidence on the relationship between shocks to relative male wages, and changes in household consumption in Mexico during the 1990s decade, which is a period characterized by high volatility. Apart from performing analysis of this type for Mexico for the first time, the paper has mainly two contributions. The first is the use of alternative data sources to construct instrumental variables for wages. The second is to examine differences across four consumption categories: non-durable goods, durable goods, education and health. Our results for non-durable goods consumption reject the hypothesis that Mexican households are able to insure idiosyncratic risk. For the comparisons across consumption categories, the conclusion is that households in Mexico tend to react to temporary shocks by contracting the consumption of goods that represents longer run investment in human capital, which makes them more vulnerable in the future

Stochastic components of individual consumption: a time series analysis of grouped data

In this paper we propose a method to characterize the time series properties of individual consumption, income and interest rates using micro data, as studies in labour economics have characterized the time series properties of hours and earnings. Our approach, however, does not remove aggregate shocks. Having estimated the parameters of a flexible multivariate MA representation we relate the coefficients of our statistical model to structural parameters of theoretical models of consumption behaviour. Our approach offers a unifying framework that encompasses the Euler equation approach to the study of consumption and the studies that relate innovations to income to innovations to consumption, such as those that have found the so-called excess smoothness of consumption. Using a long time series of cross sections to construct synthetic panel data for the UK, we estimate our model and find that the restriction of Euler equations are typically not rejected, while the data show ‘excess smoothness’

Intertemporal consumption choices, transaction costs and limited participation to financial markets: reconciling data and theory

This paper builds a unifying framework that, within the theory of intertemporal consumption choices, brings together the limited participation -based explanation of the poor empirical performance of the C-CAPM and the transaction costs-based explanation of incomplete portfolios. Using the implications of the consumption model and observed household consumption and portfolio choices, we identify the preference parameters of interest and a lower bound for the costs rationalizing non-participation in financial markets, in the presence of unobserved heterogeneity in tastes for consumption and portfolio allocation. Using the US Consumer Expenditure Survey and assuming isoelastic preferences, we estimate the coefficient of relative risk aversion at 1.7 and a cost bound of 0.4 percent of non-durable consumption. Our estimate of the preference parameter is theoretically plausible and the bound sufficiently small to be likely to be exceeded by the actual total (observable and unobservable) costs of participating to financial markets

Early evaluation of a new nutrition and education programme in Colombia

From introduction: In recent years, international financial institutions, policy-makers and economists have paid considerable attention to micro development policies based on cash transfers targeted to poor families and released only if the potential beneficiaries comply with specific conditions. Such conditional cash transfers have been particularly popular in education and nutrition policies – that is, in policies whose aim is to foster the accumulation of human capital among young children. In the case of the nutrition interventions, the conditions are often that the mother of the children, who receives the transfers, enrols them to development and growth check-ups and/or attends hygiene, vaccination and contraception courses. Much of the attention on conditional transfer programmes originated from the perceived success of a large programme of this nature started in rural Mexico in 1998 and evaluated scientifically with semi-experimental methods. Since the evidence on PROGRESA, as the Mexican programme was known, has received much attention, several international organisations have been promoting similar interventions in many developing countries and in particular in Latin America. It should be stressed that while PROGRESA has been widely branded as a success and has surely improved the nutritional and development outcomes of very young children and enrolment for secondary school, the reasons behind this success are not entirely obvious. In particular, it is not completely clear whether the conditionalities imposed by the programme played a role in determining the outcomes and what that role was

Effectiveness of tax incentives to boost (retirement) saving:theoretical motivation and empirical evidence

The adequacy of household saving for retirement has become a policy issue all around the world. The UK andUS have been in the vanguard of those countries that have tried to encourage retirement saving by providingtax-favoured treatment for particular savings accounts. We consider empirical evidence from these twocountries regarding the extent to which funds in some specific tax advantaged accounts (IRAs in the US,TESSAs and ISAs in the UK) represent new savings. Our best interpretation of this evidence is that: onlyrelatively small fractions of these funds can be considered to be ?new? saving and so these policies have been anexpensive means of encouraging saving; there has been some deadweight loss from the policies associated with?reshuffling? of existing savings. Continuing improvements in data on individual financial behaviour createscope for future empirical analysis of incentives to save, both within the standard economic framework that weexplain and exploit, and by considering extensions to and adaptations of it

Baseline report on the evaluation of Familias en Acción

This report describes the survey that was carried out in 122 communities in rural Colombia by the consortium formed by the Institute for Fiscal Studies, Econometria and SEI as the baseline for the impact evaluation of Familias en Acción, a programme to foster the accumulation of human capital in rural Colombia, run by the Colombian government. In this report, we will not describe in detail the programme or the methodology of the proposed evaluation, as this was done in IFS-Econometria-SEI (2003a). The main aim of the document is to discuss the first, baseline survey that was collected for this evaluation. While the baseline survey cannot, by definition, be used to perform impact evaluation, towards the end of the report we exploit the slightly peculiar way in which the programme was started and have a first very preliminary glance at some of the impacts that the programme might have. The methodological caveats on interpreting these results should be taken very seriously. This report does not contain an extensive ‘fieldwork’ report. This is included in SEI (2003). Analogously, we do not discuss extensively the operation of the programme and the evidence that emerged on related issues and on targeting. These issues are covered in IFS-Econometria- SEI (2003b, 2003c). We will be referring to some of the issues raised in those reports, however. This report is divided into five chapters. In Chapter 1, we briefly summarise the main features of the programme and its proposed evaluation. A more detailed description of both of these aspects is contained in IFS-Econometria-SEI (2003a). Here, however, we give some details on the expansion of the programme and on the features of this expansion that allow a first and preliminary analysis of the impact of the programme. In Chapter 2, we describe the statistical methodology that will be used in the report. This includes the methodology for the data description that constitutes the largest part of the report and for the preliminary impact evaluation. Chapter 3 describes the baseline survey. This chapter is divided into several sections, each referring to a particular module. In each section, we first describe the ‘treatment’ population – that is, the households eligible for the programme that were living in villages targeted by the programme. We then move on to the population living in ‘control’ villages – that is, in villages that were not targeted by the programme and yet are, nonetheless, reasonably similar to the treatment villages. Chapter 4 presents the preliminary impact evaluation

Child health in rural Colombia: determinants and policy interventions

In this paper we study the determinants of child anthropometrics on a sample of poor Colombian children living in small municipalities. We focus on the influence of household consumption, and public infrastructure. We take into account the endogeneity of household consumption using two different sets of instruments: household assets and municipality average wage. We find that household consumption is an important determinant of child health. The importance of the effect is confirmed by the two different sets of instruments. We find that using ordinary least squares would lead to conclude that the importance of household consumption is much smaller than the instrumental variable estimates suggest. The presence of a public hospital in the municipality positively influences child health. The extent of the piped water network positively influences the health of children if their parents have at least some education. The number of hours of growth and development check-ups is also an important determinant of child health. We find that some of these results only show up once squared and interaction terms have been included in the regression. Overall, our estimates suggest that both public and private investments are important to improve child health in poor environments

How effective are conditional cash transfers? Evidence from Colombia

Conditional cash transfer (CCT) programmes are becoming an extremely popular tool for improving the education and health outcomes of poor children in developing countries. An incomplete list of countries in which they are being implemented under the support of the World Bank and other international financial institutions includes Mexico, Honduras, Nicaragua, Brazil, Turkey and Mozambique. While the implementation details vary from country to country, many are modelled on the Mexican PROGRESA. In a typical CCT, mothers from poor backgrounds receive cash conditional on their promoting certain activities on behalf of their children. For their youngest children - usually those below the age of 6 - the conditionality involves visits to preventive healthcare centres in which their growth is monitored. School attendance is the most common stipulation for receipt of cash transfers for older children - usually those between 7 and 17 years old. This targeting of health and education of children is at the essence of the long-term poverty alleviation objective of CCT programmes. Such transfer programmes are also aimed at the short-term reduction of poverty, through the provision of immediate funds to indigent households. In this Briefing Note, we will focus on the programme Familias en Acción (FA), the CCT implemented by the Colombian government from 2001/02. In particular, we will provide estimates of how the programme has influenced key welfare indicators such as school attendance, child nutrition and health status, as well as household consumption. In this respect, we will update the preliminary results that were reported in Attanasio et al. (2003 and 2004)