Remittances and Revenue in Latin America, 1990–2017

Abstract

Do international remittances increase government tax income in developing economies? This study investigates remittances’ relationship to revenue within Latin American countries. The author builds on recent micro-level research by conceptualizing households with remittances as a transnational dispersed interest group in the political economy of taxation. Remittances increase recipients’ wealth and decouple their well-being from domestic economic processes. Together, these effects suggest that remittances generate tax preferences that align more closely with promarket tax policies offered by the political right while decreasing the value of social protection expenditures. The author hypothesizes that these effects lead remittances to boost tax revenue when the right governs, but not the left. However, shifts to the left limit remittances' effect on revenue by decreasing income from direct taxes on wealth. Results from time-series error correction models, an event-study analysis, and twostage least squares models support these expectations. Supplementary Information The online version contains supplementary material available at 10.1007/s12116-023-09390-3.