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Optimal budget deficits and immigration

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Abstract

The paper shows that immigration can create an incentive for deficit-spending among natives. If immigrants use up some given share of public funds net of debt service, a policy of running budget deficits becomes optimal. The optimal budget deficits are higher, the higher the share of net public funds spent exogenously on immigrants. We take the share of immigrants in the total population as a proxy for exogenous spending on immigrants and estimate its effect on budget deficits for 20 OECD countries during 1980--1995. We find the effect to be significant and positive, suggesting that exogenous spending was increasing during that time.

Suggested Citation

  • Karin Mayr, 2006. "Optimal budget deficits and immigration," Economics working papers 2006-19, Department of Economics, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:econwp:2006_19
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    More about this item

    Keywords

    optimal budget deficits; immigration; tax-smoothing;
    All these keywords.

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F22 - International Economics - - International Factor Movements and International Business - - - International Migration

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