The Role of Immigration in Dealing with the Developed World's Demographic Transition
This paper and its companion study, Fehr, Jokisch, and Kotlikoff (2004), develop a three-region dynamic general equilibrium life-cycle model to analyze general and skill-specific immigration policy during the demographic transition. The three regions are the U.S., Japan, and the EU. Immigration is often offered as a solution to the remarkable again underway in the developed world. Absent an immediate and dramatic change in immigration, dependency ratios will roughly double over the next three decades placing fiscal institutions, in particular, and economies, in general, under enormous stress. Can immigration alleviate these stresses? The answer is unclear bacause a number of offsetting factors are at play. First, increased immigration raises the size of the labor force, but also lowers real wages. Hence, the increase in the taxable wage base due to immigration will be less than might otherwise be expected. Second, immigrants arrive with some capital and accumulate more capital as they age. This raises labor productivity and both payroll and income tax bases. Third, immigrants, like natives, require public goods and become eligible for government welfare, health care, and pension benefits. Fiscally speaking, how much one earns' from a new immigrant depends on the immigant's skill level, which, in turn, determines the immigrant's level of earnings. The reason is that taxes and transfer payments are, in general, collected and distributed on a progressive basis. Consequently, high-skilled immigrants deliver a larger bang for the buck when it comes to paying net taxes (taxes paid net of transfer payments received). Our model confirms this point. Nonetheless, its findings, even with respect to high-skilled immigration, which we investigate in detail in this paper, are not pretty. It shows that a significant expansion of immigration, whether across all skill groups or among particular skill groups, will do remarkably little to alter the major capital shortage, tax hikes, and reductions in real wages that can be expected along the demographic transition.
|Date of creation:||May 2004|
|Date of revision:|
|Publication status:||published as Hans Fehr & Sabine Jokisch & Laurence J. Kotlikoff, 2004. "The Role of Immigration in Dealing with the Developed World's Demographic Transition," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 60(3), pages 296-, September.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Sveinbjörn Blöndal & Stefano Scarpetta, 1999. "The Retirement Decision in OECD Countries," OECD Economics Department Working Papers 202, OECD Publishing.
- Hans Fehr & Sabine Jokisch & Laurence Kotlikoff, 2003.
"The Developed World's Demographic Transition - The Roles of Capital Flows, Immigration, and Policy,"
NBER Working Papers
10096, National Bureau of Economic Research, Inc.
- Hans Fehr & Sabine Jokisch & Larry Kotlikoff, 2003. "The Developed World's Demographic Transition - the Roles of Capital Flows, Immigration, and Policy," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-133, Boston University - Department of Economics.
- Axel Boersch-Supan & Alexander Ludwig & Joachim Winter, 2001.
"Aging and International Capital Flows,"
NBER Working Papers
8553, National Bureau of Economic Research, Inc.
- Börsch-Supan, Axel & Ludwig, Alexander & Winter, Joachim, 2001. "Aging and International Capital Flows," Discussion Papers 605, Institut fuer Volkswirtschaftslehre und Statistik, Abteilung fuer Volkswirtschaftslehre.
- Axel Börsch-Supan & Alexander Ludwig & Joachim Winter, 2002. "Aging and International Capital Flows," MEA discussion paper series 02010, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
- Börsch-Supan, Axel & Ludwig, Alexander & Winter, Joachim, 2002. "Aging and International Capital Flows," Sonderforschungsbereich 504 Publications 02-27, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
- Fehr, Hans, 2000.
" Pension Reform during the Demographic Transition,"
Scandinavian Journal of Economics,
Wiley Blackwell, vol. 102(3), pages 419-43, June.
- Kjetil Storesletten, 2000.
"Sustaining Fiscal Policy through Immigration,"
Journal of Political Economy,
University of Chicago Press, vol. 108(2), pages 300-323, April.
- Kjetil Storesletten, . "Sustaining Fiscal Policy Through Immigration," Homapage Papers _005, Stockholm University, Institute for International Economic Studies.
- Storesletten, Kjetil, 1998. "Sustaining Fiscal Policy Through Immigration," Seminar Papers 664, Stockholm University, Institute for International Economic Studies.
- Mariacristina De Nardi & Selahattin Imrohoroglu & Thomas J. Sargent, 1999.
"Projected U.S. Demographics and Social Security,"
Review of Economic Dynamics,
Elsevier for the Society for Economic Dynamics, vol. 2(3), pages 575-615, July.
- Lundborg, Per & Segerstrom, Paul S., 1998.
"The Growth and Welfare Effects of International Mass Migration,"
Working Paper Series
146, Trade Union Institute for Economic Research.
- Lundborg, Per & Segerstrom, Paul S., 2002. "The growth and welfare effects of international mass migration," Journal of International Economics, Elsevier, vol. 56(1), pages 177-204, January.
- David Altig, 2001. "Simulating Fundamental Tax Reform in the United States," American Economic Review, American Economic Association, vol. 91(3), pages 574-595, June.
- Thai-Thanh Dang & Pablo Antolín & Howard Oxley, 2001. "Fiscal Implications of Ageing: Projections of Age-Related Spending," OECD Economics Department Working Papers 305, OECD Publishing.
- Robin Brooks, 2003. "Population Aging and Global Capital Flows in a Parallel Universe," IMF Staff Papers, Palgrave Macmillan, vol. 50(2), pages 3.
- Jagadeesh Gokhale & Laurence J. Kotlikoff & James Sefton & Martin Weale, 1999.
"Simulating the Transmission of Wealth Inequity via Bequests,"
NBER Working Papers
7183, National Bureau of Economic Research, Inc.
- Gokhale, Jagadeesh & Kotlikoff, Laurence J. & Sefton, James & Weale, Martin, 2001. "Simulating the transmission of wealth inequality via bequests," Journal of Public Economics, Elsevier, vol. 79(1), pages 93-128, January.
- Jagadeesh Gokhale & Laurence J. Kotlikoff & James Sefton & Martin Weale, 1998. "Simulating the transmission of wealth inequality via bequests," Working Paper 9811, Federal Reserve Bank of Cleveland.
- Whitehouse, Edward, 2001. "Pension systems in 15 countries compared: the value of entitlements," MPRA Paper 14751, University Library of Munich, Germany.
- Philip Oreopoulos & Alan J. Auerbach, 1999. "Analyzing the Fiscal Impact of U.S. Immigration," American Economic Review, American Economic Association, vol. 89(2), pages 176-180, May.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:10512. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.