Aging, factor returns, and immigration policy

Immigration has various economic and non-economic effects on the destination country's inhabitants. In this paper, we focus on the impact of immigration on factor returns and analyze how aging affects immigration policy, employing a dynamic political-economy model of representative democracy. Aging, that is, a decline in the growth rate of the native population, has an expansionary effect on immigration in this framework. This immigration effect may even overcompensate the initial contraction of the labor force. We show that the immigration rate in the representative democracy equilibrium exceeds the immigration rate that would maximize welfare of current and future generations, and we also discuss the influence of social security on immigration policy.