Job Market Paper:
A large share of migrants move for economic reasons. In most cases, the economic benefits of migration carry over to migrants' family members, making it critical to study migration decisions in conjunction with the remittance decisions of potential migrants. For this purpose, I develop and estimate a model of two-member households in which one member makes migration decisions based on expected wages and migration costs as well as the probability and amount of potential remittances for Mexican households. Counterfactual exercises on the estimated model reveal that remittances are an integral part of household decision making, and a model without remittances cannot capture the data well. I show that an increase in migration costs would decrease the average migration probability and increase the average remittance probability, conditional on migrating. This decrease is the largest for the least-educated migrants.
U.S. state governments are subject to balanced budget rules and most have ``rainy day funds (RDFs).'' We show that RDFs are a side-show and the extensive discussion of these is mainly theater, because state governments smooth expenditures using other cash accounts which are much larger than the rainy day funds. We show that a representative (average) state government's saving and expenditure smoothing is well described by a buffer-stock model of forward looking consumers (Carroll(1992,1997)) with exogenous income (revenue). We estimate the parameters of the model using Indirect Inference and find that state governments are risk-averse and impatient, with estimated parameters similar to those found for consumers.