Can Immigration Alleviate the Demographic Burden?

This paper investigates the impact of immigration on intertemporal public budgets. A modified generational accounting framework is employed to compute the average net contribution of migrants to the public sector budget in Germany. Our findings suggest that the overall fiscal contribution of immigrants is positive if they resemble current migrant residents in their economic characteristics. Therefore, immigration can decrease the fiscal burden of future resident generations. We also show that active migration policy favoring high-skilled immigrants to facilitate their labor market assimilation, may considerably enlarge the positive impact of immigration on the tax burden of native residents. However, even high immigrant inflows only partially remove the intergenerational fiscal imbalance induced by aging in Germany.