Effects of Legal and Unauthorized Immigration on the U.S. Social Security System

Immigration is having an increasingly important effect on the social insurance system in the United States. On the one hand, eligible legal immigrants have the right to eventually receive pension benefits, but also rely on other aspects of the social insurance system such as health care, disability, unemployment insurance, and welfare programs, while most of their savings have direct positive effects on the domestic economy. On the other hand, most undocumented immigrants contribute to the system through taxed wages, but they are not eligible for these programs unless they attain legal status, and a large proportion of their savings translates into remittances, which have no direct effects on the domestic economy. Moreover, a significant percentage of immigrants migrate back to their countries of origin after a relatively short period of time, and their savings while in the US are predominantly in the form of remittances. Therefore, any analysis that tries to understand the impact of immigrant workers on the overall system has to take into account the decisions and events these individuals face throughout their lives, as well as the use of the government programs they are entitled to. We propose a life-cycle OLG model in a General Equilibrium framework of legal and undocumented immigrants’ decisions regarding consumption, savings, labor supply and program participation to analyze their role in the financial sustainability of the system. Our analysis of the effects of potential policy changes, such as giving some undocumented immigrants legal status, shows increases in capital stock, output, consumption, labor productivity, and overall welfare. The effects are relatively small in percentage terms, but considerable given the size of our economy.

Dividend and capital gains taxation under incomplete markets

Motivated by the Jobs and Growth Tax Relief Reconciliation Act (JGTRRA) of 2003, the effects of capital income tax cuts are investigated in an economy with heterogeneous households and a representative, mature firm. Dividend tax cuts, contrary to capital gains tax cuts, lead to a decrease in investment and capital. This is because they increase the market value of existing capital and households require a higher return to hold this additional wealth. In line with empirical evidence, the model predicts substantial increases in dividends and stock prices. Overall, the tax cuts lead to a welfare reduction equivalent to a consumption drop of 0.5%

Effects of Legal and Unauthorized Immigration on the U.S. Social Security System

Immigration is having an increasingly important effect on the social insurance system in the United States. On the one hand, eligible legal immigrants have the right to eventually receive pension benefits, but also rely on other aspects of the social insurance system such as health care, disability, unemployment insurance, and welfare programs, while most of their savings have direct positive effects on the domestic economy. On the other hand, most undocumented immigrants contribute to the system through taxed wages, but they are not eligible for these programs unless they attain legal status, and a large proportion of their savings translates into remittances, which have no direct effects on the domestic economy. Moreover, a significant percentage of immigrants migrate back to their countries of origin after a relatively short period of time, and their savings while in the US are predominantly in the form of remittances. Therefore, any analysis that tries to understand the impact of immigrant workers on the overall system has to take into account the decisions and events these individuals face throughout their lives, as well as the use of the government programs they are entitled to. We propose a life-cycle OLG model in a General Equilibrium framework of legal and undocumented immigrants’ decisions regarding consumption, savings, labor supply and program participation to analyze their role in the financial sustainability of the system. Our analysis of the effects of potential policy changes, such as giving some undocumented immigrants legal status, shows increases in capital stock, output, consumption, labor productivity, and overall welfare. The effects are relatively small in percentage terms, but considerable given the size of our economy.Social Security Administrationhttp://deepblue.lib.umich.edu/bitstream/2027.42/87954/1/wp250.pd

Tax reform with endogenous borrowing limits and incomplete asset markets

This paper studies different income tax reforms in an infinite horizon economy with a progressive labor income tax code, incomplete markets and endogenous borrowing constraints on asset holdings. The endogenous limits are determined at the level at which households are indifferent between defaulting and paying back their un-secured debt. The reforms we study area all revenue neutral and they eliminate capital income taxes but they differ in the changes to the labor income tax code. Our results illustrate that a successful reform has to combine the elimination of capital income taxes with an increase in the progressivity of the labor income tax code. On the one hand, this reduces the disposable income of the rich, leading to lower savings and to a lower aggregate capital. On the other hand, it allows the middle income households to save more at a higher after tax interest rate and the low income households to borrow more on a lower interest rate. This increases welfare both in the long run and throughout the transition. The welfare gains are hence obtained not through more capital accumulation but by reducing wealth and consequently consumption inequality.The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396

Tax reform with endogenous borrowing limits and incomplete asset markets

This paper studies different income tax reforms in an infinite horizon economy with a progressive labor income tax code, incomplete markets and endogenous borrowing constraints on asset holdings. The endogenous limits are determined at the level at which households are indifferent between defaulting and paying back their un-secured debt. The reforms we study area all revenue neutral and they eliminate capital income taxes but they differ in the changes to the labor income tax code. Our results illustrate that a successful reform has to combine the elimination of capital income taxes with an increase in the progressivity of the labor income tax code. On the one hand, this reduces the disposable income of the rich, leading to lower savings and to a lower aggregate capital. On the other hand, it allows the middle income households to save more at a higher after tax interest rate and the low income households to borrow more on a lower interest rate. This increases welfare both in the long run and throughout the transition. The welfare gains are hence obtained not through more capital accumulation but by reducing wealth and consequently consumption inequality.The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396

Tax reform with endogenous borrowing limits and incomplete asset markets

This paper studies different income tax reforms in an infinite horizon economy with a progressive labor income tax code, incomplete markets and endogenous borrowing constraints on asset holdings. The endogenous limits are determined at the level at which households are indifferent between defaulting and paying back their un-secured debt. The reforms we study area all revenue neutral and they eliminate capital income taxes but they differ in the changes to the labor income tax code. Our results illustrate that a successful reform has to combine the elimination of capital income taxes with an increase in the progressivity of the labor income tax code. On the one hand, this reduces the disposable income of the rich, leading to lower savings and to a lower aggregate capital. On the other hand, it allows the middle income households to save more at a higher after tax interest rate and the low income households to borrow more on a lower interest rate. This increases welfare both in the long run and throughout the transition. The welfare gains are hence obtained not through more capital accumulation but by reducing wealth and consequently consumption inequality.The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396

A strategic analysis of the war against transnational terrorism

We study a two stage game in which a transnational terrorist organization interacts with an arbitrary number of countries that may differ in their political or economic power, their military effectiveness, the benefit from cooperating against terrorism and the value they assign to damage. Only a subset of countries that emerges endogenously takes proactive measures to fight the terrorist, while all countries incur defensive expenditures to protect their soil. We characterize analytically the pure strategy subgame perfect equilibrium of the game and show how the equilibrium strategies depend on the key model parameters. We provide an algorithm to find the endogenous set of cooperating countries based on their benefit from cooperation and their political/economic power.Transnational terrorism Proactive and defensive measures Strategic interactions Conflict resolution