Effects of immigration in a Blanchardian model

In this thesis, the focus is on immigration as a tool to sustain fiscal debt in government policies. We used a model that captures demographic parameters like birth rate and death rates to model households in addition to the government’s use of tax receipts from immigrants to finance government consumption and transfers to the households. We put the model in the context of a small open economy with one homogenous good and a small open economy with a tradable and a non-tradable sector. We further endogenized labour supply and studied the effect of tax transfers as well as obtained the equilibria under immigration. We found that tax transfers do not affect the supply of labour. For the last section, we studied the effectiveness of foreign worker levies as a tool to control the influx of foreign workers and increase the employment of the native workers. We found that the effectiveness of the foreign worker levies depends on whether the wage cost impact on firm entries and exits dominates over the substitution effect as firms use more of one type of labour over the other.