Sustaining Fiscal Policy Through Immigration
1998 (English)Report (Other academic)
This paper explores the fiscal implications of immigration to the US, and argues that immigration policy should be viewed as a vital part of fiscal policy. In particular, a case is made that skills and age at the time of arrival are of great importance for the cost-benefit calculation of new immigrants. Using a calibrated geneeral equilibrium overlapping generations model, which explicitly accounts for key differences between immigrants and natives, Social Security and the demographic transition, I investigate if an immigration policy reform alone could resolve the fiscal problems associated with the ageing of the baby boom generation. I find that such policies exist and are characterized by increased inflows of working-age high-and medium-skilled immigrants. One particular feasible policy involves admitting 1.6 million 40-44 year old high-skilled immigrants annually, compared to a total of 1.1 million today. In contrast, an income tax hike of 4.4% points would be required if future fiscal problems were to be solved by a once and for all tax reform. To further illuminate the fiscal impact of immigration, I compute the net government gain, in present value terms, of admitting one additional immigrant. This figure varies considerably with age and skills and reaches a maximum of seevn times GNP per capita for high-skilled 40-44 year old immigrants. In contrast, new immigrants represent, on average, a small net gain of $7,400, or 0.3 times GNP per capita.
Place, publisher, year, edition, pages
Stockholm: IIES , 1998. , 41 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 664
IdentifiersURN: urn:nbn:se:su:diva-41089OAI: oai:DiVA.org:su-41089DiVA: diva2:328264