On the Political Economy of Deficit Bias and Immigration

Abstract

I construct an optimal growth model with overlapping dynasties to investigate how much the rate at which an economy absorbs new immigrant dynasties could motivate current voters to favour greater reliance on deficit finance of government expenditures through intertemporal shifts in factor taxation. The model demonstrates that even if voters are altruistically linked to their descendants, rising immigration, coupled with declining birth rates may explain the growth in public debt and unfunded liabilities in the United States since the early 1980s, as well as the large increases in debt projected by the Congressional Budget Office over the next few decades.

No Country for Young People? The Rise of Anti-Immigration Politics in Ageing Societies

“…where z t is the previously dened citizen's old-age dependency ratio. Lastly, we use (7) to dene the totally ordered set of citizens' types at time t as the support of θ t , which writes: Θ t := {−1} ∪ Ω; i.e., Θ t is the set of types that possess non-zero probability mass. 32…”

“…While some papers focus on immigration policies related to standards, such as skill requirements (Benhabib, 1996;Ortega, 2005), the most common approach, which this paper takes, involves analysing policies that restrict the number of immigrants, such as immigration quotas (see Preston, 2014 for a survey). These studies emphasise the importance of intergenerational aspects related to the pension system (e.g., Razin & Sadka, 1999;Kemnitz, 2003;Leers et al 2003;Krieger, 2003;Ben-Gad, 2018), and immigrant fertility (Bohn & Lopez-Velasco, 2019) to explain the determinants of political views towards immigration policies. Most of these papers assume a unidimensional policy space.…”