Smooth Operator: Remittances and Fiscal Shocks

IMF Working Papers, July 19, 2017

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Smooth Operator: Remittances and Fiscal Shocks

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Bibliographic details

• Authors: Kimberly Beaton, Serhan Cevik, Reza Yousefi
• Published: July 19, 2017
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484307878.001

Background

• With 250 million migrants globally, remittances are one of the major sources of income in many developing countries.
• The literature documents that remittances facilitate consumption smoothing in receiving countries, but prior work had not considered variation with fiscal stance or during fiscal shocks.

Research focus and methodology

• Investigates the impact of remittances on the stability of household consumption using both cross-country and household-level datasets.
• Focuses on:
  • Whether the consumption-smoothing effect changes with fiscal policy phases (fiscal consolidation versus fiscal expansion).
  • Whether remittances and government support are substitutes or complements in stabilizing household consumption.

Key findings

• Remittances help smooth consumption, and hence improve welfare, more during fiscal consolidation episodes.
• The consumption-smoothing impact of remittances is insignificant during fiscal expansions.
• The remittance-smoothing effect is more pronounced in countries with greater reliance on remittances.

Policy implications and interpretation

• During fiscal consolidations, remittances play a stronger role as a private buffer for household consumption when public support is constrained.
• In fiscal expansions, government support appears to lessen the incremental consumption-smoothing role of remittances (effect statistically insignificant).
• Policy design in high-remittance countries should account for the complementary role remittances can play in stabilizing household consumption, especially when fiscal space tightens.

IMF Working Paper "Smooth Operator: Remittances and Fiscal Shocks", Kimberly Beaton, Serhan Cevik, and Reza Yousefi; July 19, 2017.

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