Private Saving in Colombia

Author: Mr. Juan Ricardo Ortega and Mr. Alejandro Lopez Mejia

This paper studies the main determinants of the sharp decline in Colombia's private saving rate which accompanied the steep deterioration of the country's external current account deficit in the 1990s. The paper rejects current arguments pointing to a consumption boom and corporate behavior as the main causes of the decline. It concludes that: private consumption, explained mainly by permanent income, has only increased moderately in the 1990s; household behavior-not corporate behavior-determines private saving; and tax increases do not entirely explain the fall of private saving. Thus, reliance on external saving could be reduced by increasing public saving.

Volume/Issue: Volume 1998 Issue 171

Publication date: December 1998

ISBN: 9781451858471

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Topics covered in this book

This title contains information about the following subjects. Click on a subject if you would like to see other titles with the same subjects.

Business and Economics , Economics- Macroeconomics , WP , Consumption , Corporate Veil , Ricardian Equivalence , private saving , saving rate , consumption boom , liquidity constraint , nondurable consumption in Colombia , consumption behavior , utility function , Private savings , Income , Private consumption , Personal income

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Summary

This paper studies the main determinants of the sharp decline in Colombia’s private saving rate which accompanied the steep deterioration of the country’s external current account deficit in the 1990s. The paper rejects current arguments pointing to a consumption boom and corporate behavior as the main causes of the decline. It concludes that: private consumption, explained mainly by permanent income, has only increased moderately in the 1990s; household behavior—not corporate behavior—determines private saving; and tax increases do not entirely explain the fall of private saving. Thus, reliance on external saving could be reduced by increasing public saving.