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Impact of immigration in dynamic macroeconomic models

Academic: Michael Ben-Gad

Name of project: Analysis of the impact of immigration in dynamic macroeconomic models

Subject: Migration and the economy

Michael Ben-Gad is a macroeconomist who has published in Economic Inquiry, Journal of Economic Dynamics and Control, Journal of Economic Theory, Journal of Macroeconomics and Review of Economic Dynamics. He is one of the authors of the US National Academy of Sciences report The Economic and Fiscal Consequences of Immigration released in September 2016. His most recent papers are The Optimal Taxation of Asset Income when Government Consumption is Endogenous: Theory, Estimation and Welfare(forthcoming, Economic Inquiry) and On the Political Economy of Deficit Bias and Immigration (forthcoming, The Economic Journal), funded by ESRC/HM Treasury/ HM Revenue and Customs, research grant RES-194-23-0020. That paper considers how much governments can shift the cost of their expenditure from today's voters to tomorrow's generations of immigrants, without resorting to taxation that is explicitly discriminatory.

It demonstrated that if their societies are absorbing continuous flows of new immigrants, we should expect governments that represent the interests of today's population to choose policies that shift some portion of the tax burden to the future, even if that population is altruistically linked to future generations. To measure the deficit bias, the dynamic behavior of an optimal growth model with overlapping dynasties and factor taxation is analysed to consider the welfare implications for today's population and their descendants of intertemporal shifts in the tax rates on labour and capital as well as transfer payments. As Ben-Gad has demonstrated in previous publications, models with overlapping infinite-lived dynasties allow for a very clear distinction between natural population growth (an increase in the size of existing dynasties) and immigration (the addition of new dynasties). They also provide an alternative to the strict dichotomy between models with overlapping generations, where agents disregard the impact of their choices on future generations, and the quasi-Ricardian world of infinite-lived dynasties with representative agents that fully participate in both the economy and the political system in every period.