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Precautionary savings by natives and immigrants in Germany

  • M. Piracha
  • Y. Zhu

This article analyses the savings behaviour of natives and immigrants in Germany. It is argued that uncertainty about future income and legal status (in case of immigrants) is a key component in the determination of the level of precautionary savings. Using the German dataset, we exploit a natural experiment arising from a change in the nationality law in Germany to estimate the importance of precautionary savings. Using a Difference-in-Differences (DiD) approach, we find a significant reduction in savings and remittances for immigrants after the easing of citizenship requirements, compared to the pre-reform period. Our parametric specification shows that introduction of the new nationality law reduces the gap in marginal propensity to save between natives and immigrants by up to 80%. These findings suggest that many of the differences in terms of the savings behaviour between natives and immigrants are driven by the savings arising from the uncertainties about future income and legal status rather than cultural differences.

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File URL: http://hdl.handle.net/10.1080/00036846.2011.566202
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Article provided by Taylor & Francis Journals in its journal Applied Economics.

Volume (Year): 44 (2012)
Issue (Month): 21 (July)
Pages: 2767-2776

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Handle: RePEc:taf:applec:44:y:2012:i:21:p:2767-2776
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  1. Merkle, Lucie & Zimmermann, Klaus F., 1992. "Savings, remittances, and return migration," Economics Letters, Elsevier, vol. 38(1), pages 77-81, January.
  2. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2000. "Do the Rich Save More?," NBER Working Papers 7906, National Bureau of Economic Research, Inc.
  3. Galor, Oded & Stark, Oded, 1990. "Migrants' Savings, the Probability of Return Migration and Migrants' Performance," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 463-67, May.
  4. Dustmann, Christian, 1997. "Return migration, uncertainty and precautionary savings," Journal of Development Economics, Elsevier, vol. 52(2), pages 295-316, April.
  5. Catalina Amuedo-Dorantes & Susan Pozo, 2006. "Remittances as insurance: evidence from Mexican immigrants," Journal of Population Economics, Springer, vol. 19(2), pages 227-254, June.
  6. Catalina Amuedo-Dorantes & Susan Pozo, 2002. "Precautionary Saving by Young Immigrants and Young Natives," Southern Economic Journal, Southern Economic Association, vol. 69(1), pages 48-71, July.
  7. Bauer, Thomas K. & Sinning, Mathias, 2005. "The Savings Behavior of Temporary and Permanent Migrants in Germany," IZA Discussion Papers 1632, Institute for the Study of Labor (IZA).
  8. Carroll, Christopher D & Rhee, Byung-Kun & Rhee, Changyong, 1994. "Are There Cultural Effects on Saving? Some Cross-Sectional Evidence," The Quarterly Journal of Economics, MIT Press, vol. 109(3), pages 685-99, August.
  9. Chiswick, Barry R, 1978. "The Effect of Americanization on the Earnings of Foreign-born Men," Journal of Political Economy, University of Chicago Press, vol. 86(5), pages 897-921, October.
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