Understanding the Determinants of Household Saving: Micro Evidence for Latin America

Abstract

This paper investigates the main patterns and drivers of the household saving rate in Latin America by assembling a broad dataset of official household surveys for 10 Latin American countries and 27 surveys covering selected years from the 1990s, 2000s and 2010s. Almost half of households display negative saving, which raises suspicions of income underreporting and/or consumption overreporting. The estimations highlight the overriding positive role of income in shaping saving decisions. Government transfers, remittances, self-employment, capitalization pension systems, access to financial services, urban location, and health and education expenses seem to diminish saving, whereas labor formality and homeownership have the opposite effect. In terms of policy implications, the drivers identified are either beyond the realm of direct government intervention or might be modified only in the long run. Moreover, some of these policies entail serious policy trade-offs, as they may boost saving at the expense of other worthy policy goals.