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Do Remittances Have a Flip Side? A General Equilibrium Analysis of Remittances, Labor Supply Responses and Policy Options for Jamaica

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Author Info

  • Bussolo, Maurizio

    () (The World Bank)

  • Medvedev, Denis

    () (The World Bank)

Abstract

Econometric analysis established a negative relationship between labor supply and remittances in Jamaica. We incorporate this ex-post evidence in a general equilibrium model to investigate economy-wide effects of increased remittance inflows. In this model, remittances reduce labor force participation by increasing reservation wages of recipients. This exacerbates the real exchange rate appreciation, hurting Jamaica’s export base and small manufacturing importcompeting sector. Within the narrow margins of maneuver of a highly indebted government, we show that a revenue-neutral policy response of a simultaneous reduction in payroll taxes and increase in sales taxes can effectively counteract these potentially worrisome effects of remittances.

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Bibliographic Info

Article provided by Center for Economic Integration, Sejong University in its journal Journal of Economic Integration.

Volume (Year): 23 (2008)
Issue (Month): ()
Pages: 734-764

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Handle: RePEc:ris:integr:0452

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Web page: http://econo.sejong.ac.kr/
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Related research

Keywords: Jamaica; remittances; labor supply; tax policy; general equilibrium;

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References

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  1. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Juan Botero, 2003. "The Regulation of Labor," NBER Working Papers 9756, National Bureau of Economic Research, Inc.
  2. James Heckman & Carmen Pages, 2003. "Law and Employment: Lessons from Latin America and the Caribbean," NBER Working Papers 10129, National Bureau of Economic Research, Inc.
  3. Collier, Paul & Dollar, David, 1999. "Aid allocation and poverty reduction," Policy Research Working Paper Series 2041, The World Bank.
  4. Forteza, Alvaro & Rama, Martin, 2001. "Labor market"rigidity"and the success of economic reforms across more than one hundred countries," Policy Research Working Paper Series 2521, The World Bank.
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Cited by:
  1. Farid MAKHLOUF & Mazhar MUGHAL, 2011. "Remittances, Dutch Disease, and Competitiveness - A Bayesian Analysis," Working Papers 2011-2012_1, CATT - UPPA - Université de Pau et des Pays de l'Adour, revised Dec 2011.
  2. Jadotte, Evans, 2009. "International Migration, Remittances and Labour Supply: The Case of the Republic of Haiti," Working Papers UNU-WIDER Research Paper , World Institute for Development Economic Research (UNU-WIDER).

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