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Remittances and public finances: Evidence from oil-price shocks

Zareh Asatryan, Benjamin Bittschi () and Philipp Doerrenberg

Journal of Public Economics, 2017, vol. 155, issue C, 122-137

Abstract: We study the effect of inflowing remittances – a major source of capital for many countries – on tax revenues and tax policy. Instrumenting remittances with changes in the oil-price interacted with a country's distance to oil-producing countries, we find that remittances have a large positive effect on VAT revenues, but no effect on income-tax revenues. This suggests that remittances often escape the income tax but can be taxed via consumption. We further show that tax policy is responsive to shocks in incoming remittances; they lead to a decrease in VAT-rates and increase the likelihood for a VAT introduction. We find no evidence for effects of remittances on income-tax rates.

Keywords: Remittances; Tax revenue; Tax policy; Value added tax; Personal income tax; Migration; Development (search for similar items in EconPapers)
JEL-codes: F24 H20 O23 (search for similar items in EconPapers)
Date: 2017
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