Discussion Paper Details

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Title: What is the Optimal Immigration Policy? Migration, Jobs and Welfare

Author(s): Joao Guerreiro, Sérgio Rebelo and Pedro Teles

Publication Date: August 2019

Keyword(s): Immigration, optimal taxation, redistribution and Welfare state

Programme Area(s): Macroeconomics and Growth

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 immigrants can be excluded from the welfare system, 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, it is optimal to ban low-skill immigration and have free immigration for high-skill workers. However, high-skill workers may choose not to immigrate when there are heavy taxes levied on all high-skill workers, natives and immi- grants alike. We use a calibrated version of the model to study how the optimal immigration policy responds to changes in the skill premia in the U.S. and abroad.

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Bibliographic Reference

Guerreiro, J, Rebelo, S and Teles, P. 2019. 'What is the Optimal Immigration Policy? Migration, Jobs and Welfare'. London, Centre for Economic Policy Research.