On the Political Economy of Deficit Bias and Immigration

I construct an optimal growth model with overlapping dynasties to investigate how much the rate at which an economy absorbs new immigrant dynasties could motivate current voters to favour greater reliance on deficit finance of government expenditures through intertemporal shifts in factor taxation. The model demonstrates that even if voters are altruistically linked to their descendants, rising immigration, coupled with declining birth rates may explain the growth in public debt and unfunded liabilities in the United States since the early 1980s, as well as the large increases in debt projected by the Congressional Budget Office over the next few decades.