Sustaining Fiscal Policy Through Immigration
AbstractThis paper explores the fiscal implications of immigration to the US and argues that immigration policy should be viewed as a vital part of fiscal policy. In particular a case is made that skills and age at the time of arrival are of great importance for the cost-benefit calculation of new immigrants. Using a calibrated general equilibrium overlapping generations model, which explicitly accounts for key differences between immigrants and natives, Social Security and the demographic transition, I investigate if an immigration policy reform alone could resolve the fiscal problems associated with the ageing of the baby boom generation I find that such policies exist and are characterized by increased inflows of working-age high and medium skilled immigrants. One particular feasible policy involves admitting 1.6 million 40-44 year-old high skilled immigrants annually compared to a total of 1.1 million today. In contrast an income tax hike of 4.4% points would be required if future fiscal problems were to be solved by a once and for all tax reform. To further illuminate the fiscal impact of immigration I compute the net government gain in present value terms of admitting one additional immigrant. This figure varies considerably with age and skills and reaches a maximum of seven times GNP per capita for high skilled 40-44 year-old immigrants. In contrast new immigrants represent on average a small net gain of $7,400 or 0.3 times GNP per capita.
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Bibliographic InfoPaper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 664.
Length: 41 pages
Date of creation: 04 Sep 1998
Date of revision:
Publication status: Published in Journal of Political Economy, 2000, pages 300-323.
Contact details of provider:
Postal: Institute for International Economic Studies, Stockholm University, S-106 91 Stockholm, Sweden
Web page: http://www.iies.su.se/
More information through EDIRC
fiscal policy; immigration;
Other versions of this item:
- F22 - International Economics - - International Factor Movements and International Business - - - International Migration
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
- J15 - Labor and Demographic Economics - - Demographic Economics - - - Economics of Minorities, Races, Indigenous Peoples, and Immigrants; Non-labor Discrimination
This paper has been announced in the following NEP Reports:
- NEP-ALL-2004-02-10 (All new papers)
- NEP-PBE-2002-02-15 (Public Economics)
- NEP-PKE-2002-02-15 (Post Keynesian Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- Social security and immigration policy cycles
by Economic Logician in Economic Logic on 2008-10-23 12:32:00
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