The Immigration Policy Puzzle

Authors

  • Paolo E. Giordani,

    1. Department of Economics and Business, LUISS “Guido Carli”, Viale Romania 32, 00197 Roma, Italy
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  • Michele Ruta

    Corresponding author
    1. Economic Research Division, World Trade Organization, Rue de Lausanne 154, 1211 Geneva, Switzerland
      Giordani: Department of Economics and Business, LUISS “Guido Carli”, Viale Romania 32, 00197 Roma, Italy. E-mail: pgiordani@luiss.it. Ruta (Corresponding Author): Economic Research Division, World Trade Organization, Rue de Lausanne 154, 1211 Geneva, Switzerland. E-mail: michele.ruta@wto.org.
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    • We would like to thank Jess Benhabib, Luca Zamparelli, and two anonymous referees for helpful comments. Remaining errors are our responsibility. The opinions expressed in this paper should be attributed to the authors. They are not meant to represent the positions or opinions of the World Trade Organization (WTO) and its members and are without prejudice to members' rights and obligations under the WTO.


Giordani: Department of Economics and Business, LUISS “Guido Carli”, Viale Romania 32, 00197 Roma, Italy. E-mail: pgiordani@luiss.it. Ruta (Corresponding Author): Economic Research Division, World Trade Organization, Rue de Lausanne 154, 1211 Geneva, Switzerland. E-mail: michele.ruta@wto.org.

Abstract

This paper revisits the puzzle of immigration policy: standard economic theory predicts that free immigration improves natives' welfare, but (with few historical exceptions) an open door policy is never implemented in practice. What rationalizes the puzzle? We first review the model of immigration policy where the policy maker maximizes national income of natives net of the tax burden of immigration. We show that this model fails to provide realistic policy outcomes when the receiving region's technology is described by a standard Cobb–Douglas or CES function. Then we describe three extensions of this basic model that reconcile theory with evidence. The first introduces a cost of integration of the immigrant community in the destination country; the second takes into account the policy maker's redistributive concern across different social groups; the last extension considers positive spillover effects of (skilled) migrants on the receiving economy.

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