Informalidad, pobreza y consumo en México: Evidencia empírica entre 1993 y 2019

Abstract

Informality, Poverty and Consumption in Mexico: Empirical Evidence between 1993 and 2019

In this document we explore the relationship between informality, poverty and “predictable consumption” in Mexico. We start from a macroeconomic model with two types of agents to recover the predictable consumption series, which represents the individuals who spend all their income in each period. We estimate predictable consumption with an instrumental variables method to solve the problem of simultaneity between consumption and income. Using this series, we test the hypothesis that individuals with predictable consumption are people living in poverty or working in the informality. Our results suggest that some of the variations in predictable consumption are due to changes in poverty. This document is the first to analyze the heterogeneity of consumption in Mexico, mapping out its behavior with two types of consumers, from which it is concluded that a considerable part of private consumption (almost 40%) is consistent with the permanent income hypothesis. Furthermore, this article is the first to formally document the strong relationship between poverty and informality in Mexico, which has important economic policy implications.