Working Paper: NBER ID: w12800
Authors: Edith Sand; Assaf Razin
Abstract: In the political debate people express the idea that immigrants are good because they can help pay for the old. The paper explores this idea in a dynamic political-economy setup. For this purpose we develop an OLG political economy model of social security and migration. We characterize sub-game perfect Markov equilibria where immigration policy and pay-as-you-go (PAYG) social security system are jointly determined through a majority voting process. The main feature of the model is that immigrants are desirable for the sustainability of the social security system because the political system is able to manipulate the ratio of old to young and thereby the coalition which supports future high social security benefits. We demonstrate that the older is the native born population the more likely is that the immigration policy is liberalized and the social security system survives.
Keywords: immigration; social security; political economy; pay-as-you-go system
JEL Codes: F22; H55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Native-born population ages (J11) | Liberalization of immigration policy (K37) |
| Liberalization of immigration policy (K37) | Sustainability of social security system (H55) |
| Native-born population ages (J11) | Sustainability of social security system (H55) |
| Current young voters influence immigration policy (K37) | Future social security benefits (H55) |
| Older voters favor policies (J26) | Sustainability of social security benefits (H55) |