The welfare state and migration: A dynamic analysis of political coalitions

Benjarong Suwankiri, Assaf Razin, Efraim Sadka

Research output: Contribution to journalArticlepeer-review

Abstract

We develop a dynamic political-economic theory of welfare state and immigration policies, featuring three distinct voting groups: skilled workers, unskilled workers, and old retirees. The essence of inter- and intra-generational redistribution of a typical welfare system is captured with a proportional tax on labor income to finance a transfer in a balanced-budget manner. We provide an analytical characterization of political-economic equilibrium policy rules consisting of the tax rate, the skill composition of migrants, and the total number of migrants. When none of these groups enjoy a majority (50 percent of the voters or more), political coalitions will form. With overlapping generations and policy-determined influx of immigrants, the formation of the political coalitions changes over time. These future changes are taken into account when policies are shaped.

Original languageEnglish
Pages (from-to)122-142
Number of pages21
JournalResearch in Economics
Volume70
Issue number1
DOIs
StatePublished - 1 Mar 2016

Keywords

  • Generosity of welfare state
  • Markov-perfect political equilibrium
  • Pay as you go
  • Political coalitions
  • Skill composition of migration
  • Strategic voting

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