Munich Personal RePEc Archive

Financial Services and Household Inequality in Mexico

Villarreal, Francisco G. (2014): Financial Services and Household Inequality in Mexico.

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Abstract

The Mexican government has recently launched several initiatives aimed at increasing the use of formal financial services, under the implicit assumption that they allow households to smooth consumption and finance investment in human capital. This study seeks to determine what is the impact of the use of formal financial services, proxied by the use of credit cards, on the level and distribution of household consumption in Mexico. Using data from the 2010 household income and expenditure survey, an instrumental variables approach is used in the context of quantile regressions, to correct for the bias that stems from households' self-selection in the decision to use formal financial services. The results indicate that financial services increase consumption of those households that use them, and that this effect is strongest for households in the lowest quantiles, thus reducing inequality of consumption across households.

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