The objective of Discussion Paper No. 1500 is to highlight the importance of the 'public finance' impact of international migration on tax revenue and government spending on public goods, and via these effects on a country's wages and welfare. Konstantine Gatsios, Panos Hatzipanayotou and Michael S Michael construct a general equilibrium trade model of a labour exporting and a labour-importing country with identical consumers, producing many freely traded private goods and one public consumption good.

The study reproduces the traditional wage effect of international migration. However, it also shows that, contrary to the existing literature, international migration may have adverse effects on wages and welfare in both countries due to the presence of the pure public good, even if commodity prices are constant. The analysis describes and explains the conditions under which the adverse effects may occur. Furthermore, it discovers that, under certain conditions, a conflict of interest may arise among migrating workers, non-migrating workers and the government seeking to maximize social welfare.

International Migration, Welfare and the Provision of Public Goods
Konstantine Gatsios, Panos Hatzipanayotou and Michael S Michael