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Fiscal impact, immigration and productivity

Sakthivel, Bhargavi (2021) Fiscal impact, immigration and productivity. PhD thesis, London School of Economics and Political Science.

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Identification Number: 10.21953/lse.00004366


Public and political concerns over the effects of immigration on the U.S. public finances heighten during recessions. The first chapter estimates the changes to the fiscal impact of immigration over the business cycle (2006 - 2018). I focus on the extensive margin - "how much more likely are immigrants to make and receive transfers from the government", and the intensive margin - "how much do immigrants contribute to the government balances". The likelihood that an immigrant receives individual benefits decreases (pro-cyclical) relative to a native during a downturn. The difference in the net contributions between immigrants and natives is consistently positive and increases post-2012. These dynamic changes over the business cycle are due to variations in the immigrant composition since immigrants are more likely to be positively selected during recessions. The second chapter proposes a simple way to address the endogeneity problem in tax multiplier studies. The endogeneity arises because lawmakers propose tax cuts in anticipation of a slowing economy, making it difficult to identify the causal impact of tax changes on aggregate output. Since only the legislated tax changes directly impact the economy, proposed tax changes that ultimately fail to become law can serve as a proxy for the unobserved output expectations of lawmakers. Using this proxy method and novel data on failed tax proposals, we obtain a tax multiplier of around -0.46 to -2.06 for the United States from 1975 to 2017. The final chapter studies the extent of the productivity gains in the IT-intensive manufacturing sector between 1980 and 2009. I use the methodology of Young (2014) to estimate the elasticity of average worker efficacy and changing labour allocations (+1.4) and use that to remeasure total factor productivity growth. The revised productivity measures provide some evidence that the lack of observed productivity gains is caused by the changing labour shares.

Item Type: Thesis (PhD)
Additional Information: © 2021 Bhargavi Sakthivel
Library of Congress subject classification: H Social Sciences > HG Finance
J Political Science > JV Colonies and colonization. Emigration and immigration. International migration
Sets: Departments > Economics
Supervisor: Ilzetzki, Ethan

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