Borrowing Constraints and Credit Demand

This paper investigates the determinants of credit demand in the presence of borrowing constraints for the Chilean economy using a recently collected detailed and innovative data set, the Households Financial Survey. The estimation procedure employed allows for the observed debt to be a function of multiple selection rules and incorporates the endogeneity of income and assets into the debt equation. The paper provides compelling evidence that the relationship between household income and debt, both secured and non secured, is highly non linear. This result has clear implications for the level of household debt in the face of financial deregulation.

Choosing Health Insurance in a Dual Health Care System: The Chilean Case

In Chile there is a public insurance system where people contribute a fixed percentage of their income, and also a private system where people pay a premium based on their personal characteristics. Using a large survey for 1996, we study the determinants of the decision to buy a private health plan. We find that the probability of buying a private health plan is positively correlated with income and living in areas with private health services providers. This probability decreases as families become older, and with a larger proportion of fertile age females. We also find that people who are more likely to demand health services prefer to buy a private health plan, and that people enrolled in a private health plan increase their use of health services. The segmentation observed in the health sector relates with the way private insurers and the public insurance system set their premiums.health insurance; health services; income segmentation

Financial Markets Incompleteness and Inequality Over the Life-Cycle

This paper addresses the relevance of contemporary uncertainty under incomplete markets in explaining wealth and consumption inequality when preferences are homogeneous. We explore the role of illiquid saving (saving that cannot be used to buffer contemporary shocks) generated by contemporary uncertainty, and a cost of liquidating saving, in generating differences in saving behaviour between initially-rich and initially-poor in a numerically solved life-cycle model. We observe that the existence of a risk premium significantly increases the ability of the households to accumulate wealth to finance their consumption, even under high risk aversion. We find that there is increasing consumption inequality across the life-cycle between groups, and that this result is boosted by access to risky assets and higher values of the coefficient of risk aversion. Critically, the possibility to borrow against saving helps to prevent increased consumption inequality paths, which is the effect of illiquid saving under contemporary uncertainty. Our findings may help us to understand why the poor save so little, and therefore support social programmes that guarantee a minimum consumption for those below a certain level of wealth to allow them to catch up with wealthier individuals.

Distribution of Assets, Debt, and Income of Chilean Households

This paper summarizes the main results from the latest household panel survey (Social Protection Survey 2004/05 about the distribution of assets, debt and income across Chilean households. Several appealing conclusions can be drawn. First of all, it is worth stressing that a relatively small proportion of households hold a large share of debts, assets and income. In particular, the richest quintile concentrates 57% and 43% of debts and assets, respectively. Overall, households that hold the largest share of the debt are composed by young adults with higher education and formal employment contracts. The analysis also shows that, for the vast majority of households, 80%, their assets are greater than their liabilities, and hence, they are financially less vulnerable to changes in macroeconomic and financial conditions. Only 4% of households register negative net worth and a heavy debt service burden. This highly vulnerable group concentrates 9% of total debt.

Chile: pensión anticipada, impaciencia y aversión al riesgo

Incluye BibliografíaAproximadamente un tercio de los chilenos se pensiona de manera anticipada. Al acercarse a la edad de jubilación, los individuos están más conscientes del estado de salud propio de esa edad, lo que reduce la incertidumbre sobre la calidad de vida futura y puede provocar una mayor impaciencia relativa. En este artículo se analiza teóricamente cómo la esperanza de vida futura afecta a la impaciencia relativa y logra inducir una mayor probabilidad de pensión anticipada. Los resultados empíricos para Chile muestran que a mayor esperanza de vida futura, menor es la probabilidad de pensión anticipada. Además, se estudia teóricamente cómo la aversión al riesgo exacerba la impaciencia relativa, debido a la incertidumbre de poder disfrutar de una buena calidad vida en los años futuros. Los resultados empíricos muestran una correlación positiva entre aversión al riesgo y pensión anticipada a través del mecanismo de la esperanza de vida

Households’ Financial Vulnerability

Households’ financial vulnerability determines households’ default risk. Financial stability could be affected by households’ behavior under stressful macroeconomic conditions. Households’ financial vulnerability depends on their indebtedness levels and on the fragility of their income sources to be able to fulfill their obligations. The main source of households’ uncertainty comes from labor income generation, which is critically determined by unemployment. Heterogeneity of indebtedness levels and of income uncertainty calls for microeconomic analysis. This paper uses panel data survival analysis to estimate the probability of job loss at the individual level. Using semi-parametric methods, a significant heterogeneity is found for the impact of aggregate unemployment among individuals. Monte Carlo simulations are run to assess households financial stress and then to estimate aggregate debt at risk under high unemployment rate scenarios. Since the majority of debt is held by those with lower levels of income vulnerability, it is found that financial stability is not significantly affected by high unemployment levels.

Financial Markets Incompleteness and Inequality Over the Life-Cycle

Este artículo aborda la relevancia de la incertidumbre contemporánea bajo mercados financieros incompletos para explicar desigualdad de riqueza y consumo cuando las preferencias son homogéneas. Se explora el rol del ahorro ilíquido (ahorro que no puede ser utilizado para amortiguar shocks contemporáneos) generado por la incertidumbre contemporánea, y un costo para liquidar los ahorros, en la generación de diferencias en las decisiones de ahorro entre inicialmente-ricos e inicialmente-pobres en un modelo de ciclo de vida resuelto numéricamente. Se observa que la existencia de premio por riesgo incrementa significativamente la capacidad de los hogares de acumular riqueza para financiar su consumo, incluso bajo alta aversión al riesgo. Se encuentra que existe desigualdad en el consumo creciente en el ciclo de vida entre grupos y que este resultado es reforzado por el acceso a activos riesgosos y altos valores del coeficiente de aversión. De forma crítica, la posibilidad de endeudamiento contra los ahorros ayuda a impedir sendas de consumo con desigualdad creciente, que es el efecto ahorro ilíquido bajo incertidumbre contemporánea. Los resultados pueden ayudar a entender por qué los pobres ahorran tan poco, y por lo tanto apoyan programas sociales que garantizan un consumo mínimo para aquellos bajo un cierto umbral de riqueza de modo de permitirles alcanzar a los individuos más ricos