The Effect of Citizenship on Savings: Evidence from Germany

The significant rise of life expectancy in the last decades coupled with fertility rates below reproduction level put enormous pressure on public budgets. Despite immigration is seen as a possible solution to smooth transition from pay-as-you-go pension schemes, a significant fraction of migrants themselves are at/or near retirement age. Notwithstanding, we know very little about immigrants’ capacity to provide for themselves in old age and achieve economic security. The following paper aims at expanding our knowledge about migrants’ savings and in particular, it endeavours to achieve understanding about how saving choices of migrants respond to changes in their citizenship status. The empirical strategy exploits two immigration reforms in Germany that took place in 1990 and 1999 respectively, and using the German Socio-Economic Panel, the question we aim to answer is: Does a more liberal access to citizenship affect savings of migrants? If it does, which are the likely channels through which these effects take place? Our preliminary results suggest that immigrants significantly reduce their propensity to save (extensive margin) and amount saved (intensive margin) in the host country with each additional year after naturalisation. Considering only host country savings, however, gives us an incomplete picture on the saving behaviour after naturalisation. We address this problem by providing evidence using data on remittances. Our final results show a significant and negative effect of citizenship on savings, while no effect is found for remittances.