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Optimal budget deficits and immigration

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.

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File URL: http://www.econ.jku.at/papers/2006/wp0619.pdf
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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2006-19.

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Date of creation: Oct 2006
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Handle: RePEc:jku:econwp:2006_19
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Web page: http://www.econ.jku.at/

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  1. Allan Drazen & Vittorio Grilli, 1990. "The Benefits of Crises for Economic Reforms," NBER Working Papers 3527, National Bureau of Economic Research, Inc.
  2. Alesina, Alberto & Drazen, Allan, 1991. "Why Are Stabilizations Delayed?," American Economic Review, American Economic Association, vol. 81(5), pages 1170-88, December.
  3. Razin, A. & Sadka, E. & Swagel, P., 1998. "Tax Burden and Migration: a Political Economy Theory and Evidence," Papers 15-98, Tel Aviv.
  4. Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank.
  5. René Böheim & Karin Mayr, 2005. "Immigration and public spending," Economics working papers 2005-12, Department of Economics, Johannes Kepler University Linz, Austria.
  6. Tabellini, Guido, 1991. "The Politics of Intergenerational Redistribution," Journal of Political Economy, University of Chicago Press, vol. 99(2), pages 335-57, April.
  7. McCarty, Therese A, 1993. "Demographic Diversity and the Size of the Public Sector," Kyklos, Wiley Blackwell, vol. 46(2), pages 225-40.
  8. Barro, Robert J., 1979. "On the Determination of the Public Debt," Scholarly Articles 3451400, Harvard University Department of Economics.
  9. Barro, Robert J, 1986. " U.S. Deficits since World War I," Scandinavian Journal of Economics, Wiley Blackwell, vol. 88(1), pages 195-22.
  10. Robert E. Lucas, Jr. & Nancy L. Stokey, 1985. "Money and Interest in a Cash-in-Advance Economy," NBER Working Papers 1618, National Bureau of Economic Research, Inc.
  11. Nouriel Roubini & Jeffrey Sachs, 1989. "Government Spending and Budget Deficits in the Industrial Economies," NBER Working Papers 2919, National Bureau of Economic Research, Inc.
  12. Roubini, Nouriel & Sachs, Jeffrey D., 1989. "Political and economic determinants of budget deficits in the industrial democracies," European Economic Review, Elsevier, vol. 33(5), pages 903-933, May.
  13. Nouriel Roubini & Jeffrey Sachs, 1988. "Political and Economic Determinants of Budget Deficits in the IndustrialDemocracies," NBER Working Papers 2682, National Bureau of Economic Research, Inc.
  14. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
  15. Weingast, Barry R & Shepsle, Kenneth A & Johnsen, Christopher, 1981. "The Political Economy of Benefits and Costs: A Neoclassical Approach to Distributive Politics," Journal of Political Economy, University of Chicago Press, vol. 89(4), pages 642-64, August.
  16. Lucas, Robert Jr. & Stokey, Nancy L., 1983. "Optimal fiscal and monetary policy in an economy without capital," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 55-93.
  17. Alberto Alesina & Roberto Perotti, 1994. "The Political Economy of Budget Deficits," NBER Working Papers 4637, National Bureau of Economic Research, Inc.
  18. Dorfman, Robert, 1969. "An Economic Interpretation of Optimal Control Theory," American Economic Review, American Economic Association, vol. 59(5), pages 817-31, December.
  19. Barro, Robert J., 1974. "Are Government Bonds Net Wealth?," Scholarly Articles 3451399, Harvard University Department of Economics.
  20. Cukierman, Alex & Meltzer, Allan H, 1989. "A Political Theory of Government Debt and Deficits in a Neo-Ricardian Framework," American Economic Review, American Economic Association, vol. 79(4), pages 713-32, September.
  21. Velasco, Andres, 2000. "Debts and deficits with fragmented fiscal policymaking," Journal of Public Economics, Elsevier, vol. 76(1), pages 105-125, April.
  22. Nordhaus, William D, 1975. "The Political Business Cycle," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 169-90, April.
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