Modeling and Evaluating the Labor Market and Fiscal Effects of Immigration

Immigration affects natives through both labor markets and public budgets, yet these channels are usually studied separately. We combine them in a general-equilibrium model with search-and-matching frictions, skill-specific progressive labor taxes, capital taxation and public goods, calibrated to 17 OECD countries over 2015–2019. The welfare effect on natives of a one-percentage-point increase in immigrant inflows varies in sign and size across countries, hinging on immigrants’ skill mix, immigrant-native wage gaps, resident unemployment, and tax progressivity. For inflows matching the skill composition of 2019–2024 arrivals, native welfare rises in 14 of 17 economies, and in most cases both skill groups gain, through different channels. Lower-skilled natives gain mainly from higher pre-tax earnings, driven by job creation and complementarity with skilled immigrants; higher-skilled natives gain mainly from lower labor-tax burdens. Evaluating immigration policy thus requires modeling labor-market and fiscal channels jointly: either channel alone gives an incomplete picture of who gains and why.