Facultad de Ciencias Económicas

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Hand-to-Mouth in Emerging Countries?
(Universidad de Concepción, 2025) Mendoza Yusef, Francisco; Araya Gómez, Iván
Understanding household consumption dynamics is crucial for designing effective economic policies in emerging markets, yet limited evidence exists on the role of heterogeneous household behaviour. This study applies the Wealthy Hand-to Mouth model by Kaplan and Violante (2014) to estimate the marginal propensity to consume (MPC) in Chile, using the Blundell et al. (2008) model adapted by Hong (2023). Drawing on data from the Chilean Social Protection Survey (2004-2020), the analysis reveals that 94% of Chilean households are classified as Hand-to-Mouth (HtM), a rate three times higher than in developed economies. Consequently, the MPC for HtM households is between two and four times greater compared to models that do not account for household heterogeneity. Among the lowest three income quintiles, the MPC of Poor HtM households exceeds to 100%, indicating that these households consume more than their additional income, driven largely by high levels of indebtedness. These findings bridge a critical gap in the literature on emerging markets and underscore the importance of incorporating household heterogeneity into policy design and economic modelling, with potential implications for debt relief programs and social policy interventions.