voting process in a dynamic set-up, where the native-born voters’ preferences
over immigration are influenced by the prospect that immigrants will be voting
over future tax policy. The paper of Dolmas and Huffman refers to the deci-
sions over immigration quotas and redistributive tax policy in subsequent three
periods model with different degree of international capital mobility. The latter
paper considers a infinite horizon general equilibrium model of immigration and
redistribution policies, with a heterogeneously skilled population who chooses
an immigration policy by majority vote while anticipating that immigration af-
fects the skill premium and the skill composition of the electorate. Razin, Sadka
and Swagell (2002b) show, in a stylized model of migration and human capital
formation, that low-skill immigration may lead to a lower tax burden and less re-
distribution than would be the case with no immigration, even though migrants
(naturally) join the pro-tax/transfer coalition. This is due to two conflicting
effects of migration on taxation and redistribution. On the one hand, migrants
who are net beneficiaries of the welfare state will join forces with the low income
native-born voters in favor of higher taxes and transfers. On the other hand,
redistribution becomes more costly to the native-born as the migrants share the
redistribution benefits with them. These models clearly dial with intragenera-
tional transfer, and not the intergenerational transfer as in a pure social security
model. The present paper will extend this growing body of literature by analyz-
ing the sub-game perfect Markov equilibria of a political-economy model, where
the political decisions regarding migration and pay-as-you-go social security are
jointly determined, focusing on the intergenerational aspect of social security.
3 A Base Line Model
The economy is populated by overlapping generations of identical individuals.
Individuals live for two periods. When young, the representative individual
works and makes a labor-leisure choice. Underdeveloped capital markets do
not allow any private savings. Social security is therefore the only means of
intertemporal transfers. When old, the individual retires, and receives social
security benefits. The tax-transfer system is "pay as you go" where in every
period the government levies a flat tax on the young’s wage income, which
fully finances the social security benefits paid to the old. Immigrants enter the
economy when young, and gain the right to vote only in the next period, when
old. They have the same preferences as those of the native-born, except from
having a higher population growth rate. Immigrants are fully integrated into the
social security system upon arrival into the country. Offspring of immigrants