The fiscal impact of immigration to welfare states of the Scandinavian type

Marianne Frank Hansen, Marie Louise Schultz-Nielsen and Torben Tranaes ()
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Marianne Frank Hansen: The Danish Rational Economic Agents Model—DREAM

Journal of Population Economics, 2017, vol. 30, issue 3, No 7, 925-952

Abstract: Abstract In this paper, we examine the potential of immigration to strengthen fiscal sustainability, which is under pressure by an ageing population in many European countries. We look at a particularly challenging case, namely that of Denmark, which has extensive tax-financed welfare programmes that provide a high social safety net. The analysis is based on a forecast of the entire Danish economy made using a dynamic computable general equilibrium model with overlapping generations. We present life cycle estimates of the potential fiscal impact of immigration considering the cost of immigration on the margin as well as on average. The main conclusion is that immigrants from Western countries have a positive fiscal impact, while immigrants from non-Western countries have a large negative one, which is also the case when considering only non-refugee immigrants. The negative effect is caused by both a weak labour market performance and early retirement in combination with the universal Danish welfare schemes.

Keywords: Immigration; Sustainable fiscal policy; Welfare benefits (search for similar items in EconPapers)
JEL-codes: E62 F22 J61 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (16)

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DOI: 10.1007/s00148-017-0636-1

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