Social Security Reforms with Immigration: Assimilation of Immigrants Dynasties

In a heterogeneous-agent small-open economy welfare e¤ects of immigration policy and social security reforms is studied. It is claimed that increased immigration policy makes everyone better o ¤ across and within generations. Three alternative social security systems are considered- fully funded, pay-as-you-go, and pay-as-you-go with restriction of per period balanced social security budget. It is shown that the fully funded and PAYG systems are equivalent in welfare terms. The study is concentrated on the behavior of the welfare under restricted PAYG (and its relation to the welfare under alternative policies) which changes with the characteristics of the immigrants and the nature of assimilation that the generations of immigrants undergo.