Pension Reforms and the Incentives to Save: Lessons from Mexico

Posted: 4 Mar 2011

See all articles by Gabriel Lara Ibarra

Gabriel Lara Ibarra

The World Bank - Poverty and Equity Global Practice

Date Written: November 10, 2010

Abstract

This paper investigates the effect of the introduction of tax free retirement accounts on the savings behavior of Mexican households. The paper contributes empirical evidence to the debate about whether preferential tax treatment is an effective policy tool to encourage household savings.

The empirical strategy of the paper is a difference-in-difference approach that utilizes an arguably exogenous change in access to tax free accounts for a well-defined set of workers. The data provide evidence of heterogeneous effects across demographic subgroups and across quantiles of the savings distribution that accord with predictions of a standard model of savings behavior. In particular, the data show an increase in the savings rate of treated workers in the year following the introduction of the accounts. The effect is driven by prime age workers and by high income workers. Among prime age workers, the lower savers experience the largest effects of the policy change. I perform multiple robustness checks on these findings, including propensity score matching models and tests for potential confounding factors such as changes in retirement accounts returns or fees, or changes in workers income.

Keywords: Mexico, Retirement, Savings, Taxation

JEL Classification: H20, H55, J32

Suggested Citation

Lara Ibarra, Gabriel, Pension Reforms and the Incentives to Save: Lessons from Mexico (November 10, 2010). Available at SSRN: https://ssrn.com/abstract=1776144

Gabriel Lara Ibarra (Contact Author)

The World Bank - Poverty and Equity Global Practice ( email )

1818 H St NW
Washington, DC 20433
United States

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