How much will immigration help European fiscal problems?

Martin Feldstein thinks not so much:

The ageing of the population presents a major fiscal challenge for the
countries of Europe.  The combination of increased longevity and a
reduced birth rate will directly reduce the growth rates of the
European economies by slowing the growth of the capital stock and by
weakening the productivity of the labor force.  This slower growth of
GDP means a smaller tax base and less tax revenue.  In addition, the
current tax-financed systems of social pensions and health care will
require substantial increases in the already high tax rates.  The
analysis in this paper shows that the common prescription of increased
immigration would do little to reduce the future fiscal burden.  The
increased revenue from a large rise in immigration would finance only a
small part of the coming rise in the cost of pension and health
benefits.  The only alternative to significantly higher tax rates or
substantially lower retirement income is to shift from a pure
tax-financed system to a mixed system that supplements the tax financed
benefits with benefits based on increased saving financial investment.

Here is the paper.  I can’t find a non-gated version, which might be because Feldstein runs the NBER…


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