Public pensions and immigration policy in a democracy

The paper analyzes the link between the public pension system and the immigration policy. In a pay-as-you-go system, the incentives for immigration vary significantly between individuals at different lifetime periods. In the framework of an overlapping generations model, we show that the median voter's choice in general leads to inefficient levels of immigration. The median voter neglects the effects of the externalities within the pension system on other generations. An immigration policy that is not affected by the median voter's choice but instead is constitutionally determined will avoid welfare losses. The expected lifetime income of each generation can be increased by applying a rule of steady immigration. JEL classification