Remittances and Public Finances: Evidence from Oil-Price Shocks

28 Pages Posted: 12 Apr 2016

See all articles by Zareh Asatryan

Zareh Asatryan

ZEW – Leibniz Centre for European Economic Research

Benjamin Bittschi

ZEW – Leibniz Centre for European Economic Research

Philipp Dörrenberg

University of Mannheim; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); ZEW – Leibniz Centre for European Economic Research

Date Written: March 3, 2016

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: remittances make the adoption of VAT-systems more likely, and they lead to lower VAT-rates and higher income-tax rates.

Keywords: Remittances, Tax revenue, Tax policy, Value added tax, Personal income tax, Migration, Development

JEL Classification: F24, H20, O23

Suggested Citation

Asatryan, Zareh and Bittschi, Benjamin and Dörrenberg, Philipp, Remittances and Public Finances: Evidence from Oil-Price Shocks (March 3, 2016). ZEW - Centre for European Economic Research Discussion Paper No. 16-022, Available at SSRN: https://ssrn.com/abstract=2762296 or http://dx.doi.org/10.2139/ssrn.2762296

Zareh Asatryan (Contact Author)

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Benjamin Bittschi

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Philipp Dörrenberg

University of Mannheim ( email )

L 7, 3-5
Mannheim, 68161
Germany

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Munich
Germany

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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