The fiscal implications of the UK's post-Brexit migration policy

Abstract: This paper uses a sophisticated Overlapping Generations (OLG) model to examine the fiscal impacts of immigration to the UK, disaggregated by age, place of origin and degree status. We find that in 2019 alone, the flow of immigrants was worth a total of £370 billion to the UK government in terms of net present value. We also show that there remains considerable scope to increase this contribution by changing the demographic mix of immigrants, and we model a range of scenarios for the UK's post-Brexit migration policy to illustrate the potential gains. We innovate and expand on previous approaches to this problem in some key respects. We are the first to capture the effects of falling mortality and fertility rates, and to quantify the indirect effects of migration on the budget via the savings and labour market channels on wages and interest rates. In the closed economy framework, we find that these effects are extremely strong and dominate the direct fiscal effects. Finally, we believe we are the first to consider the use of return migration as a potential policy variable.