DO REMITTANCES CROWD OUT THE GOVERNMENT’S REDISTRIBUTIVE POLICY?

In this paper, we develop a political economy model with a voting equilibrium to analyze the impact of remittances in the government's redistributive policy. Remittances affect the distribution of income and the households' demand for public redistribution. In this paper we consider the impact of remittances on two types of redistributive programs: a universal and a targeted transfer program. For an economy with targeted public transfers, we identify conditions in which an increase in remittances crowds out the social transfers of the government. If the redistributive program is universal then an increase in remittances actually increases the size of the government's transfers. [PUBLICATION ABSTRACT]