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Immigration as a Policy Tool for the Double Burden Problem of Prefunding Pay-as-you-go Social Security System

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  • Hisahiro Naito

Abstract

The effect of accepting more immigrants on welfare in the presence of a pay-as-you-go social security system is analyzed theoretically and quantitatively in this study. First, it is shown that if intergenerational government transfers initially exist from the young to the old, the government can lead an economy to the (modified) golden rule level within a finite time in a Pareto-improving way by increasing the percentage of immigrants to natives (PITN). Second, by using the computational overlapping generation model, I calculate both the welfare gain of increasing the PITN from 15.5 percent to 25.5 percent in 80 years and the years needed to reach the (modified) golden rule level in a Pareto-improving way in a model economy. The simulation results show that the present discounted value of the Pareto-improving welfare gain of increasing the PITN is 23 percent of initial GDP. It takes 112 years for the model economy to reach the golden rule level in a Pareto-improving way.

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  • Hisahiro Naito, 2015. "Immigration as a Policy Tool for the Double Burden Problem of Prefunding Pay-as-you-go Social Security System," Tsukuba Economics Working Papers 2015-002, Economics, Graduate School of Humanities and Social Sciences, University of Tsukuba.
  • Handle: RePEc:tsu:tewpjp:2015-002
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    1. Pascal Belan & Pierre Pestieau, 1999. "Privatizing Social Security: A Critical Assessment," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 24(1), pages 114-130, January.
    2. Robert M. Solow, 1956. "A Contribution to the Theory of Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 70(1), pages 65-94.
    3. Shimasawa, Manabu & Oguro, Kazumasa, 2010. "Impact of immigration on the Japanese economy: A multi-country simulation model," Journal of the Japanese and International Economies, Elsevier, vol. 24(4), pages 586-602, December.
    4. Shinichi Nishiyama & Kent Smetters, 2007. "Does Social Security Privatization Produce Efficiency Gains?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(4), pages 1677-1719.
    5. M. Dolores Collado & IÒigo Iturbe-Ormaetxe & Guadalupe Valera, 2004. "Quantifying the Impact of Immigration on the Spanish Welfare State," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 11(3), pages 335-353, May.
    6. Fabio Canova & Morten Ravn, 2000. "The Macroeconomic Effects of German Unification: Real Adjustments and the Welfare State," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(3), pages 423-460, July.
    7. Ather H. Akbari, 1989. "The Benefits of Immigrants to Canada: Evidence on Tax and Public Services," Canadian Public Policy, University of Toronto Press, vol. 15(4), pages 424-435, December.
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