Research
Immigration Reform and Fiscal Policy
Adjustments to U.S. immigration policy have the potential to reshape the demographic and skill composition of the U.S., both today and in the future. Shifts in demographics and skill composition will lead to changes in wages and ultimately net tax receipts. I quantify such shifts and calculate the potential welfare changes and fiscal consequences of different immigration policies. To do this I use a calibrated OLG model with heterogeneity in skills, the intergenerational transmission of their skills as well as fertility rates and the labor market outcomes of children by parents’ country of origin. I find that moving to a merit-based immigration system can be welfare improving for U.S. workers both with and without a college education. This is a result which is driven in part by the positive fiscal externalities generated by skilled immigrants. In addition, I show that children of immigrants are quantitatively important when considering policy changes, as is the intergenerational transmission of skills. Finally, I show that if recent changes in the composition of immigrant arrivals continues it can alleviate the predicted pressures on public finances as a result of an aging U.S. population.