The Impact of Immigrants on Public Finances: A Forecast Analysis for Denmark

33 Pages Posted: 14 Feb 2015

See all articles by Marianne Hansen

Marianne Hansen

Danish Rational Economic Agents Model (DREAM)

Marie Louise Schultz-Nielsen

Rockwool Foundation Research Unit; IZA Institute of Labor Economics

Torben Tranaes

Rockwool Foundation Research Unit; Danish National Institute of Social Research (SFI); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

Abstract

All over Europe, ageing populations threaten nations' financial sustainability. In this paper we examine the potential of immigration to strengthen financial sustainability. 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 for the entire Danish economy made using a dynamic computable general equilibrium model with overlapping generations. Net contributions to the public purse are presented both as cross-sectional figures for a long time horizon and as average individual life-cycle contributions. The main conclusion is that immigrants from richer countries have a positive fiscal impact, while immigrants from poorer countries have a large negative one. 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

JEL Classification: F22, E62, J61

Suggested Citation

Hansen, Marianne and Schultz-Nielsen, Marie Louise and Tranaes, Torben, The Impact of Immigrants on Public Finances: A Forecast Analysis for Denmark. IZA Discussion Paper No. 8844, Available at SSRN: https://ssrn.com/abstract=2564977

Marianne Hansen (Contact Author)

Danish Rational Economic Agents Model (DREAM) ( email )

KĂžbenhavn
Denmark

Marie Louise Schultz-Nielsen

Rockwool Foundation Research Unit ( email )

Sejroegade 11
DK-2100 Copenhagen
Denmark

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Torben Tranaes

Rockwool Foundation Research Unit ( email )

Sejroegade 11
DK-2100 Copenhagen
Denmark
+45 39 17 38 31 (Phone)

HOME PAGE: http://www.rff.dk/organi/tt.htm

Danish National Institute of Social Research (SFI) ( email )

Herluf Trolles Gade 11
DK-1052 Kopenhagen
Denmark

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.cesifo.de

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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