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Immigration and the Survival of Social Security: A Political Economy Model

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Author Info
Edith Sand
Assaf Razin

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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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12800.

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Date of creation: Dec 2006
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Handle: RePEc:nbr:nberwo:12800

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Find related papers by JEL classification:
F22 - International Economics - - International Factor Movements and International Business - - - International Migration
H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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  1. Ronald Lee & Timothy Miller, 2000. "Immigration, Social Security, and Broader Fiscal Impacts," American Economic Review, American Economic Association, vol. 90(2), pages 350-354, May. [Downloadable!] (restricted)
  2. Torsten Persson & Guido Tabellini, 1999. "Political Economics and Public Finance," NBER Working Papers 7097, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Razin, Assaf & Sadka, Efraim, 2000. " Unskilled Migration: A Burden or a Boon for the Welfare State?," Scandinavian Journal of Economics, Blackwell Publishing, vol. 102(3), pages 463-79, June. [Downloadable!] (restricted)
    Other versions:
  4. John Hassler & José V. Rodríguez Mora & Kjetil Storesletten & Fabrizio Zilibotti, 2001. "The Survival of the Welfare State," Economics Working Papers 603, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  5. Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314.
  6. Kjetil Storesletten, . "Sustaining Fiscal Policy Through Immigration," Homapage Papers _005, Stockholm University, Institute for International Economic Studies. [Downloadable!]
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  7. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund. [Downloadable!]
  8. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October. [Downloadable!] (restricted)
  9. Razin, Assaf & Sadka, Efraim, 1995. "Resisting Migration: Wage Rigidity and Income Distribution," CEPR Discussion Papers 1091, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  10. Krusell, Per, 2002. "Time-consistent redistribution," European Economic Review, Elsevier, vol. 46(4-5), pages 755-769, May. [Downloadable!] (restricted)
  11. Edward C. Prescott & José-Víctor Ríos-Rull, 2000. "On the equilibrium concept for overlapping generations organizations," Working Papers 602, Federal Reserve Bank of Minneapolis.
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  12. Jim Dolmas & Gregory W. Huffman, 2004. "On The Political Economy Of Immigration And Income Redistribution," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(4), pages 1129-1168, November. [Downloadable!] (restricted)
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  13. Razin, Assaf & Sadka, Efraim & Swagel, Phillip, 2002. "Tax burden and migration: a political economy theory and evidence," Journal of Public Economics, Elsevier, vol. 85(2), pages 167-190, August. [Downloadable!] (restricted)
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  14. Assaf Razin & Efraim Sadka & Phillip Swagel, 2002. "The Aging Population and the Size of the Welfare State," Journal of Political Economy, University of Chicago Press, vol. 110(4), pages 900-918, August. [Downloadable!] (restricted)
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  15. Galasso, Vincenzo & Profeta, Paola, 2002. "The political economy of social security: a survey," European Journal of Political Economy, Elsevier, vol. 18(1), pages 1-29, March. [Downloadable!] (restricted)
  16. Casey B Mulligan, 1999. "Gerontocracy, Retirement, and Social Security," University of Chicago - George G. Stigler Center for Study of Economy and State 154, Chicago - Center for Study of Economy and State. [Downloadable!]
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  17. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467. [Downloadable!] (restricted)
  18. Razin, Assaf & Sadka, Efraim & Swagel, Phillip, 1998. "Tax Burden and Migration," Economics Series 59, Institute for Advanced Studies. [Downloadable!]
  19. Thomas F. Cooley & Jorge Soares, 1999. "A Positive Theory of Social Security Based on Reputation," Journal of Political Economy, University of Chicago Press, vol. 107(1), pages 135-160, February. [Downloadable!] (restricted)
  20. Assaf Razin & Efraim Sadka, 2004. "Welfare Migration: Is the Net Fiscal Burden a Good Measure of Its Economic Impact on the Welfare of the Native Born Population?," NBER Working Papers 10682, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  21. Lorenzo Forni, 2005. "Social Security as Markov Equilibrium in OLG Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(1), pages 178-194, January. [Downloadable!] (restricted)
  22. Razin, Assaf & Sadka, Efraim, 1999. "Migration and pension with international capital mobility," Journal of Public Economics, Elsevier, vol. 74(1), pages 141-150, October. [Downloadable!] (restricted)
  23. Benhabib, Jess, 1996. "On the political economy of immigration," European Economic Review, Elsevier, vol. 40(9), pages 1737-1743, December. [Downloadable!] (restricted)
  24. Michele Boldrin & Aldo Rustichini, 2000. "Political Equilibria with Social Security," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(1), pages 41-78, January. [Downloadable!] (restricted)
  25. Martin S. Feldstein, 2006. "The Effects of the Ageing European Population on Economic Growth and Budgets: Implications for Immigration and Other Policies," NBER Working Papers 12736, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  26. Browning, Edgar K, 1975. "Why the Social Insurance Budget Is Too Large in a Democracy," Economic Inquiry, Oxford University Press, vol. 13(3), pages 373-88, September.
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