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Migration and the Welfare State: Dynamic Political-Economy Theory

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  • Razin, Assaf
  • Sadka, Efraim
  • Suwankiri, Benjarong

Abstract

We develop a dynamic politico-economic theory of welfare state, featuring three groups of voters: skilled workers, unskilled workers, and old retirees. The welfare-state is modeled by a proportional tax on labor income to finance a demogrant in a balanced-budget manner to capture the essence of inter- and intra-generational redistribution of a typical welfare system. Migrants arrive when young and their birth rate exceeds the native-born birth rate. We characterize political-economic equilibrium policy rules consisting of the tax rate, the skill composition of migrants, and the total number of migrants, in terms of demographic and labor productivity characteristics. We find that political coalitions will form among skilled and unskilled voters or among unskilled and old voters in order to block the other group from coming into power. As a consequence, the ideal polices of the unskilled voters always feature in any political economy equilibrium.

Suggested Citation

  • Razin, Assaf & Sadka, Efraim & Suwankiri, Benjarong, 2010. "Migration and the Welfare State: Dynamic Political-Economy Theory," CEPR Discussion Papers 7996, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:7996
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    Cited by:

    1. Assaf Razin, 2013. "MIGRATION into the WELFARE STATE: tax and migration competition," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 20(4), pages 548-563, August.
    2. Rayp, Glenn & Ruyssen, Ilse & Standaert, Samuel, 2017. "Measuring and Explaining Cross-Country Immigration Policies," World Development, Elsevier, vol. 95(C), pages 141-163.
    3. Ian Preston, 2014. "The Effect of Immigration on Public Finances," Economic Journal, Royal Economic Society, vol. 124(580), pages 569-592, November.
    4. Tim Krieger, 2014. "Public Pensions and Immigration," ifo DICE Report, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 12(2), pages 10-15, July.

    More about this item

    Keywords

    generous welfare state; pay as you go; skill composition of migration;

    JEL classification:

    • F0 - International Economics - - General
    • G0 - Financial Economics - - General

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