Optimal Immigration Policy

International migration affects the lives of millions, both at origin and at destination.

It is known to generate aggregate benefits for destination countries even though labor market prospects of some natives may be worsened. Depending on the type of migrants, it can also benefit or harm origin countries.

The design of immigration policies that maximize benefits, foster immigrant integration, and compensate potential losers is key for overall welfare.

This project develops a systematic framework to design optimal immigration policies and provides a comprehensive evaluation of such policies’ welfare effects.We build our analysis focusing on five policy goals: i) redistribution policies that transfer some of the benefits from winners to losers; ii) optimal methods to assign immigrant visas; iii) preferential tax schemes for high-earning foreigners that encourage positive self-selection in skills; iv) selective immigration policies that are not detrimental, or even foster, origin countries’ economic development; and v) spatial allocation policies for immigrants that incentivize the accumulation of skills and assimilation.We develop and estimate a dynamic equilibrium framework to achieve these goals.

The framework features, among others: human capital and labor supply decisions both at origin and destination; endogenous migration and return migration decisions; multiple sources of observed and unobserved heterogeneity; a worldwide general equilibrium that accounts for aggregate and idiosyncratic uncertainty; and the presence of knowledge spillovers and externalities from using skilled labor and capital equipment in production.

The richness of the model and the variety of datasets used in estimation are unprecedented, which poses important methodological challenges. We develop novel estimation algorithms that allow us to address these challenges. We use the estimated model to design and evaluate optimal policies through simulations.