Working Paper: NBER ID: w20806
Authors: Assaf Razin; Efraim Sadka; Benjarong Suwankiri
Abstract: We develop a dynamic political-economic theory of welfare state and immigration policies, featuring three distinct voting groups: skilled workers, unskilled workers, and old retirees. The essence of inter- and intra-generational redistribution of a typical welfare system is captured with a proportional tax on labor income to finance a transfer in a balanced-budget manner. We characterize political-economic equilibrium policy rules consisting of the tax rate, the skill composition of migrants, and the total number of migrants. When none of these groups enjoy a majority (50 percent of the voters or more), political coalitions will form. With overlapping generations and policy-determined influx of immigrants, the formation of the political coalitions changes over time. These future changes are taken into account when policies are shaped. The paper characterizes the evolution of the political coalitions that implement welfare state and migration policies.
Keywords: Welfare State; Migration; Political Economy; Dynamic Analysis
JEL Codes: F22; H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| skilled migrants (J61) | tax revenues (H29) |
| tax revenues (H29) | welfare system (I38) |
| skilled migrants > native-born (J61) | total number of migrants (F22) |
| total number of migrants (F22) | robust welfare state (P16) |
| unskilled workers majority (F66) | limit immigration policies (K37) |
| limit immigration policies (K37) | skill composition of labor force (J24) |