Comments and corrections welcomed Importing Taxpayers: Immigration and the Politics of Social Security Reform

Many children feel an obligation to ensure their parents can sustain their living standard in retirement. This paper builds a simple political economy model of social security in which forward-looking workers maximize the retirement income benefits they will receive from their children. These workers choose their savings in anticipation of benefits in retirement, making it difficult for their children not to pay to pay those benefits ex post. I show, however, that a population aging induced increase in the tax burden on the later generation reduces the size of the benefit that the earlier generation can rationally expect. Though unlikely to be a panacea for financial strained social security system, a policy of selectively “importing ” foreign workers can augment the future tax base and increase the size of the benefit that the older generation can extract. When the older generation is decisive over future immigration policy, the model predicts that population aging will induce a relaxation of immigration restrictions. 1 I