Abstract

Immigration has a twofold impact on the sustainability of German fiscal policy. First, due to its positive impact on population size the fiscal burden spreads more shoulders i. e. the burden per capita declines (demographic effect). Second, the socioeconomic differences across natives and immigrants imply a structural effect, whose sign cannot be determined a priori. Based on the method of Generational Accounting the present paper finds that the overall impact of immigration on the sustainability of Germany’s fiscal policy is positive. This over all positive impact stems from the demographic effect, which outweighs the negative structural effect of immigration. Regarding the design of migration policies we find that considerable gains in sustainability may be reaped by attracting a larger share of high-skilled immigrants, while the positive impact of present immigration may turn negative if the integration of especially the second and third generation of immigrants into society fails.