Working Paper: CEPR ID: DP13909
Authors: João Guerreiro; Sérgio Rebelo; Pedro Teles
Abstract: We study the immigration policy that maximizes the welfare of the native population in an economy where the government designs an optimal redistributive welfare system and supplies public goods. We show that when immigrants can be excluded from the welfare system, free immigration is optimal. It is also optimal to use the tax system to encourage the immigration of high-skill workers and discourage that of low-skill workers. When immigrants and natives must be treated alike, it is optimal to ban low-skill immigration and have free immigration for high-skill workers. However, high-skill workers may choose not to immigrate when there are heavy taxes levied on all high-skill workers, natives and immi- grants alike. We use a calibrated version of the model to study how the optimal immigration policy responds to changes in the skill premia in the U.S. and abroad.
Keywords: immigration; optimal taxation; welfare state; redistribution
JEL Codes: H21; F22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Exclusion of immigrants from welfare system (I38) | Free immigration is optimal (K37) |
| Different taxes for low and high-skill workers (F16) | Free immigration (K37) |
| Government cannot discriminate (J78) | Ban on low-skill immigration is optimal (J68) |
| Heavy taxes on high-skill workers (H29) | Deterrence of high-skill immigration (K37) |
| Low-skill immigration (K37) | Raises skill premium (J24) |
| Skill premium changes (J24) | Optimal immigration policy is sensitive (K37) |