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Remittances and Social Spending

  • DAVID DOYLE (a1)
Abstract

Remittances are a significant source of foreign exchange for developing economies. I argue that remittances, due to their compensation and insurance functions, will increase the general income level and economic security of recipients, thereby reducing their perceived income risk. Over time, this will dampen demand from recipients for government taxation and social insurance. Therefore, I expect increases in income remitted to an economy to result in reduced levels of social welfare transfers at the macro-level. This dynamic can help us to understand spending patterns in developing democracies, and the absence of demand for social security transfers in countries with high levels of inequality and economic insecurity. I test this argument with a sample of 18 Latin American states, over the period 1990 to 2009, and subject the central causal mechanism to a battery of statistical tests. The results of these tests provide strong support for this argument.

Copyright
Corresponding author
David Doyle is Associate Professor of Politics, Department of Politics and International Relations and Fellow of Latin American Centre, University of Oxford, St Hugh's College, St Margaret's Road, Oxford, OX2 6 LE (david.doyle@politics.ox.ac.uk).
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