The migration challenge for PAYG
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Immigration has been popularised in the economics literature as a tool that could be used to balance troubled PAYG pension systems. Pivotal research by Razin and Sadka shows that unskilled immigration can overcome the pension problem and, further, boost the general welfare in the host economy. However, a large strand of current economics research is engaged in identifying mechanisms through which unskilled immigration, while solving the pension problem, is causing undesired shifts in general welfare. This work shows that recurring unskilled immigration will not only reduce the general welfare but may also be challenging the pension system by reducing the pension benefits themselves. Further interpreting the actual data, it is suggested that immigration policies are designed either based on public finances only or in a political environment of gerontocracy.
KeywordsPublic pensions PAYG Unskilled migration Capital dilution
AMS 2000 Subject ClassificationJ18 F22 H55
This paper has benefited from comments by Byeongju Jeong, Randall K. Filer, Sergey Slobodyan, Jan Kmenta and Andrea Downing as well as the editor—Alessandro Cigno—and two anonymous referees. Any error remaining is the sole responsibility of the author.
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