Abstract
As life expectancy increases and fertility declines, population aging puts pressure on the financing of welfare states in Europe and other developed countries. Given that immigrant workers are younger than the domestic population, a continuous flow of immigrants reduces the old-age dependency ratio and improves financing. Existing general equilibrium estimates of the public finance contribution of migration, performed with different models, are not comparable across countries and sometimes differ even in sign. We use the same overlapping-generations model with a detailed representation of institutions and labor market activity to provide comparable estimates of the impact of immigration on public finance in four European countries. We find that future projected immigration flows are equivalent to 14.3 % points labor income taxes in Austria, 7.3 points in Germany, 6.2 points in the UK and 1.7 points in Poland in 2060. These differences are due to the projected volume of immigration and institutional setups, among other factors. For comparable volumes of immigration, future flows have largest impact in Germany and smallest in the UK.
Highlights
Driven by drops in fertility and increases in life expectancy, population aging puts pressure on the financing of pensions and other social security expenditures
We find that future immigration flows, as projected by Eurostat (2011), have different contributions to old-age social security financing across countries
Our study suggests that public finance concerns due to population aging represent another economic factor behind immigration policy heterogeneity: some countries benefit more over the long-term from immigration than others
Summary
Driven by drops in fertility and increases in life expectancy, population aging puts pressure on the financing of pensions and other social security expenditures. Changes in GDP per capita, taxes and pension deficit after 50 years, normalized to the same migration shock (−0.1 % of population) assuming proportional impacts; only general equilibrium analysis for Europe and the USA are considered in the table finance in Denmark while Izquierdo et al (2010) find a positive impact for Spain Whether these differences come from modeling choices or from country characteristics is unclear, which makes cross-country comparisons problematic and policy making coordination difficult.. Assuming relative future immigration volumes as in Germany for all countries, immigration is equivalent to 5.7 % points labor income taxes in Austria, 3.9 in Poland and 2.1 in the UK, compared to 7.3 in Germany
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