Optimal Budget Deficits and Immigration

Johannes Kepler University of Linz, Economics Working Paper No. 0619

Posted: 5 Jun 2008

See all articles by Karin Mayr

Karin Mayr

University of Linz - Department of Economics

Date Written: October 1, 2006

Abstract

The paper shows that immigration can create an incentive for deficit-spending among natives. If immigrants use up some given share of public funds net of debt service, a policy of running budget deficits becomes optimal. The optimal budget deficits are higher, the higher the share of net public funds spent exogenously on foreigners. I take the share of immigrants in the total population as a proxy for exogenous spending on immigrants and estimate its effect on budget deficits for 20 OECD countries during 1980-1995. I find the effect to be significant and positive, suggesting that exogenous spending was increasing during that time.

Keywords: optimal budget deficits, immigration, tax-smoothing

JEL Classification: H62, H63, F22

Suggested Citation

Mayr, Karin, Optimal Budget Deficits and Immigration (October 1, 2006). Johannes Kepler University of Linz, Economics Working Paper No. 0619, Available at SSRN: https://ssrn.com/abstract=978389

Karin Mayr (Contact Author)

University of Linz - Department of Economics ( email )

Altenbergerstr. 69
A-4040 Linz, Uper Austria 4040
Austria

Do you have negative results from your research you’d like to share?

Paper statistics

Abstract Views
396
PlumX Metrics