Sustaining Fiscal Policy through Immigration

Using a calibrated general equilibrium overlapping generations model, which explicitly accounts for differences between immi- grants and natives, this paper investigates whether a reform of im- migration policies alone could resolve the fiscal problems associ- ated with the aging of the baby boom generation. Such policies are found to exist and are characterized by an increased inflow of working-age high- and medium-skilled immigrants. One particular feasible policy involves admitting 1.6 million 40-44-year-old high- skilled immigrants annually. These findings are illustrated by com- puting the discounted government gain of admitting additional immigrants, conditional on their age and skills.