The Welfare State and International Remittances*

J. Atsu Amegashie and Michael Batu

Finnish Economic Papers, 2020, vol. 29, issue 1, 33-51

Abstract: It is well known that a prudent agent will increase precautionary savings in response to greater uncertainty of future income. The welfare state, being an insurance or consumption-smoothing mechanism, reduces the negative welfare effect of future income uncertainty. Using a model of remittances and savings, we show that an immigrant will increase his remittances in response to a first-order risk decrease in future income. Using changes in the size and generosity of the welfare state as a measure of changes in future income risk, we empirically test the prediction of our model using panel data of remittance outflows from OECD countries. Our empirical analysis finds that there is a positive relationship between a more generous welfare state and remittance outflows.

JEL-codes: D13 E21 F22 F24 I38 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:fep:journl:v:29:y:2020:i:1:p:33-51

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