Working Paper: NBER ID: w26154
Authors: Joao Guerreiro; Sergio 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 the government can design different tax systems for immigrants and natives, 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, banning low-skill immigration and allowing free immigration for high-skill workers is optimal. However, there might be no high-skill immigration when heavy taxes are levied on all high-skill workers, both natives and immigrants.
Keywords: Immigration Policy; Welfare; Public Goods; Redistribution
JEL Codes: F22; H21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Immigration policy (K37) | welfare of native populations (I39) |
| Free immigration is optimal when government can implement different transfers or taxes for low and high-skill workers (F16) | welfare of native populations (I39) |
| Banning low-skill immigration (K37) | redistribution of income towards low-skill native workers (J68) |
| Government can distinguish between native and immigrant workers (K37) | free immigration remains optimal (K37) |
| Congestion created by immigrants (J69) | optimal immigration policy becomes complicated (K37) |
| Inability to distinguish between worker types (J79) | optimal immigration policy becomes complicated (K37) |