Precautionary savings by natives and immigrants in Germany

M. Piracha, Y. Zhu

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    11 Citations (Scopus)

    Abstract

    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.

    Original languageEnglish
    Pages (from-to)2767-2776
    Number of pages10
    JournalApplied Economics
    Volume44
    Issue number21
    DOIs
    Publication statusPublished - 14 Jun 2011

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    Keywords

    • Migrants
    • Remittances
    • Uncertainty

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