Paper #815

Title:

Immigration and the survival of the welfare state

Author:

Francesc Ortega

Date:

December 2004

Abstract:

This paper analyzes the political sustainability of the welfare state in a model where immigration policy is also endogenous. In the model, the skills of the native population are affected by immigration and skill accumulation. Moreover, immigrants affect future policies, once they gain the right to vote. The main finding is that the long-run survival of redistributive policies is linked to an immigration policy specifying both skill and quantity restrictions. In particular, in steady state the unskilled majority admits a limited inflow of unskilled immigrants in order to offset growth in the fraction of skilled voters and maintain a high degree of income redistribution. Interestingly, equilibrium immigration policy shifts from unrestricted skilled immigration, when the country is skill-scarce, to restricted unskilled immigration, as the fraction of native skilled workers increases. The analysis also suggests a new set of variables that may help explain international differences in immigration restrictions.

Keywords:

Repeated voting, Markov equilibrium, political economy, immigration policy, welfare state, redistribution, skill premium, education

JEL codes:

F22, I2, J62

Area of Research:

Macroeconomics and International Economics / Labour, Public, Development and Health Economics

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