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The Impact of Pension Reforms on Mexican Household Saving

In 1997, the Mexican government approved a comprehensive pension reform that affected the labor force in the private sector. The legislation did not affect workers employed in the public sector. In this paper, I use this policy change as a natural experiment to evaluate the impact of pension reforms on household saving behavior. I implement an evaluation methodology using private sector workers affected by the social security reforms as the treatment group and similar workers in the public sector serving as the control group. In this way changes in households saving are compared in the reform and non-reform scenario. The impact of the reform is naturally isolated from the substitution of other forms of social security wealth because most Mexican households do not have other types of annuitized income during retirement, such as private pensions or employer-provided plans. The empirical impact of the reform is estimated using a difference-in-differences estimator obtained with propensity score matching methods. The data is from ENIGH biannual rounds corresponding to the period 1994-2002. The data is appropriate to evaluate the reforms as experiment because allows the identification of individuals by social security institution. The results indicate that households adopting the new funded pension system increase their saving rates systematically.