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Migration and the Welfare State: A Dynamic Political-Economy Theory

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  • Assaf Razin
  • Efraim Sadka
  • Benjarong Suwankiri

Abstract

We develop a dynamic politico-economic theory of welfare state and immigration policies, 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 policies of the unskilled voters are featured more often in the political economy equilibria than any other groups regardless of the size of unskilled voters.

Suggested Citation

  • Assaf Razin & Efraim Sadka & Benjarong Suwankiri, 2009. "Migration and the Welfare State: A Dynamic Political-Economy Theory," NBER Working Papers 15597, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:15597
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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. repec:ces:ifodic:v:12:y:2014:i:2:p:19116205 is not listed on IDEAS
    4. Ian Preston, 2014. "The Effect of Immigration on Public Finances," Economic Journal, Royal Economic Society, vol. 124(580), pages 569-592, November.

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    JEL classification:

    • F0 - International Economics - - General
    • H0 - Public Economics - - General

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