No Country for Young People? The Rise of Anti-immigration Populism in Ageing Societies

We investigate the effects of (i) population ageing and (ii) rising income inequality on immigration policies using an overlapping-generations model of elections with endogenous political parties. In each period, young people work and pay taxes while old people receive social security payments. Immigrants are generally young, meaning they contribute significantly to financing the cost of public services and social security. Among natives, the elderly and the poor benefit the most from public spending. However, because these two types of voters do not fully internalize the positive fiscal effects of immigration, they have a common interest in coalescing around a populist party (or multiple) seeking to curb immigration and increase the tax burden on high-income individuals. Population ageing and rising income inequality increase the size and, in turn, the political power of such parties, resulting in more restrictive immigration policies, a larger public sector, higher tax rates, and lower societal well-being. Calibrating the model to UK data suggests that the magnitude of these effects is large. The implications of this model are shown to be consistent with patterns observed in UK attitudinal data.