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The Role of Immigration in Sustaining the Social Security System: A Political Economy Approach

  • Edith Sand
  • Assaf Razin

In the political debate people express the idea that immigrants are good because they can help pay for the old. The paper explores this idea in a dynamic political-economy setup. We characterize sub-game perfect Markov equilibria where immigration policy and pay-as-you-go (PAYG) social security system are jointly determined through a majority voting process. The main feature of the model is that immigrants are desirable for the sustainability of the social security system, because the political system is able to manipulate the ratio of old to young and thereby the coalition which supports future high social security benefits. We demonstrate that the older is the native born population the more likely is that the immigration policy is liberalized; which in turn has a positive effect on the sustainability of the social security system.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1979.

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Date of creation: 2007
Date of revision:
Handle: RePEc:ces:ceswps:_1979
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  1. Razin, Assaf & Sadka, Efraim, 2000. " Unskilled Migration: A Burden or a Boon for the Welfare State?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 463-79, June.
  2. Hassler, John & Mora, Jose & Storesletten, Kjetil & Zilibotti, Fabrizio, 2002. "The Survival of the Welfare State," Seminar Papers 704, Stockholm University, Institute for International Economic Studies.
  3. Kjetil Storesletten, . "Sustaining Fiscal Policy Through Immigration," Homapage Papers _005, Stockholm University, Institute for International Economic Studies.
  4. Breyer, Friedrich & Craig, Ben, 1997. "Voting on social security: Evidence from OECD countries," European Journal of Political Economy, Elsevier, vol. 13(4), pages 705-724, December.
  5. Tabellini, Guido, 1990. "A Positive Theory of Social Security," CEPR Discussion Papers 394, C.E.P.R. Discussion Papers.
  6. Razin, A. & Sadka, E. & Swagel, P., 1998. "Tax Burden and Migration: a Political Economy Theory and Evidence," Papers 15-98, Tel Aviv.
  7. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February.
  8. Becker, Gary S & Mulligan, Casey B, 2003. "Deadweight Costs and the Size of Government," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 293-340, October.
  9. Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-95, December.
  10. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January.
  11. Casey B Mulligan, 1999. "Gerontocracy, Retirement, and Social Security," University of Chicago - George G. Stigler Center for Study of Economy and State 154, Chicago - Center for Study of Economy and State.
  12. Harrie Verbon & Marijn Verhoeven, 1992. "Decision making on pension schemes under rational expectations," Journal of Economics, Springer, vol. 56(1), pages 71-97, February.
  13. Jim Dolmas & Gregory W. Huffman, 2004. "On The Political Economy Of Immigration And Income Redistribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1129-1168, November.
  14. Martin S. Feldstein, 2006. "The Effects of the Ageing European Population on Economic Growth and Budgets: Implications for Immigration and Other Policies," NBER Working Papers 12736, National Bureau of Economic Research, Inc.
  15. repec:oup:restud:v:63:y:1996:i:2:p:301-29 is not listed on IDEAS
  16. Assaf Razin & Efraim Sadka & Phillip Swagel, 2001. "The Aging Population and the Size of the Welfare State," NBER Working Papers 8405, National Bureau of Economic Research, Inc.
  17. Benhabib, Jess, 1996. "On the political economy of immigration," European Economic Review, Elsevier, vol. 40(9), pages 1737-1743, December.
  18. Assaf Razin & Efraim Sadka, 2004. "Welfare Migration: Is the Net Fiscal Burden a Good Measure of its Economics Impact on the Welfare of the Native-Born Population?," CESifo Working Paper Series 1273, CESifo Group Munich.
  19. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
  20. Theodore C. Bergstrom & John L. Hartman, 2005. "Demographics and the Political Sustainability of Pay-as-you-go Social Security," CESifo Working Paper Series 1378, CESifo Group Munich.
  21. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January.
  22. Bohn, Henning, 1999. "Will social security and Medicare remain viable as the U.S. population is aging?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 1-53, June.
  23. Ortega, Francesc, 2005. "Immigration quotas and skill upgrading," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1841-1863, September.
  24. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March.
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