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The Welfare State and International Remittances

Author

Listed:
  • J. Atsu Amegashie

    (Department of Economics and Finance University of Guelph)

  • Michael Batu

    (Department of Economics University of the Fraser Valley)

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.

Suggested Citation

  • J. Atsu Amegashie & Michael Batu, 2020. "The Welfare State and International Remittances," Finnish Economic Papers, Finnish Economic Association, vol. 29(1), pages 33-51, Spring.
    • Handle: RePEc:fep:journl:v:29:y:2020:i:1:p:33-51
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration
    • F24 - International Economics - - International Factor Movements and International Business - - - Remittances
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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