Gstach, Dieter and Grandner, Thomas
Restricted immigration in a two-sector economy.
Department of Economics Working Paper Series, 55.
Inst. für Volkswirtschaftstheorie und -politik, WU Vienna University of Economics and Business, Vienna.
This paper deals with income redistribution and fiscal effects caused by immigration in a two-sector economy with fixed capital endowments. We consider immigration under political control into one sector only, guided by the stylized fact that empirical immigration distributions often appear highly unequal. A distinguishing feature of the present model are changing relative good prices which are ruled out in related single sector models but typically also in open economy type of models. Thus even pure wage earners may win from immigration. The political support for immigration therefore crucially depends on relative sector size. Furthermore the necessary tax-rate to finance the transfer system may decrease as result of immigration. We also demonstrate that decreasing relative productivity of the open sector is accompanied by decreasing support for immigration. (authors' abstract)