Authors: Efraim Berkovich, Daniela Costa, and Austin Herrick
Abstract: In a general equilibrium, overlapping generations model with heterogeneous agents and stochastic labor productivity, we account for differences between immigrants and natives to investigate the macroeconomic effects of immigration to the United States. Including household labor productivity transitions jointly with legal status transitions, we model policies which change the size and composition of the immigrant population and analyze implications for government spending and tax revenues. Temporary increases in legal immigration rates lead to long term fiscal benefits, in aggregate and on a per capita basis, in part because of decreases in the old-age dependency ratio. These policies produce long lasting, multi-generational effects, as the children of new immigrants enter the workforce. A six year increase in legal immigration by 25% is predicted to lead to a 0.08% increase in per capita GDP and a 0.41% decrease in total government debt in 2032, but, by 2052, the policy increases per capita GDP by 0.30% while government debt is 1.34% lower than in the baseline. Policies which legalize unauthorized immigrants imply a trade-off between higher wages for newly-legalized workers and increased government debt through additional spending on social programs for those same immigrants. A full legalization policy leads to a 0.02% increase in government debt by 2032 and a 1.26% increase by 2052. Per capita GDP, meanwhile, is 0.01% lower than baseline in 2032 and 0.37% lower in 2052.
Key Words: Immigration, exogenous state transitions, labor productivity
JEL Classification Numbers: J18, H55, J11