The Fiscal Effect of US Immigration: A Generational-Accounting Perspective

Past research traditionally has adopted a static, cross-sectional approach in assessing the net effect of immigrants on the economy's fiscal position. But this approach is inadequate, for it fails to account for the future impact of current immigrants and their offspring. To overcome this shortcoming and avoid misleading conclusions, a dynamic analysis is necessary. The recently developed tool of generational accounting provides an ideal framework for such analysis, for it also permits a comparison of the fiscal effects of immigration policy with those of other policies.
This paper amends and then applies the technique of generational accounting to measure the fiscal effects of immigration. Among its findings are:
1) The recent improvement in the US fiscal picture reduces the potential fiscal benefits of immigration. With future generations projected to bear a lower net fiscal burden than under previous forecasts, there is less to be gained by sharing this burden with new immigrants.
2) Changes in the level of immigration have an uncertain effect on fiscal balance, with the sign dependent on parameter choices and assumptions. However, the effect, whether positive or negative, is small in magnitude relative to the overall US fiscal imbalance.
3) Of greater potential fiscal importance are changes in the composition of the immigrant population, in particular with respect to educational attainment.
Thus, to the extent that the debate over immigration policy has focused on the level rather than the composition of the immigrant population, this attention may have been misplaced.