Scandinavian Working Papers in Economics

Discussion Paper Series in Economics,
Norwegian School of Economics, Department of Economics

No 22/2015: Trading off Welfare and Immigration in Europe.

Ole-Petter Moe Hansen () and Stefan Legge ()
Additional contact information
Ole-Petter Moe Hansen: Dept. of Economics, Norwegian School of Economics and Business Administration, Postal: NHH , Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Stefan Legge: University of St. Gallen, Postal: University of St.Gallen, Department of Economics, SIAW Institute,, Bodanstrasse 8, , CH-9000 St.Gallen, , Switzerland.

Abstract: In this paper, we explore the trade-off Europe faces when choosing between immigration from poor countries and welfare spending. Using data from the European Social Survey on sixteen countries from 2002-2012, we document that voter preferences shifted in favor of redistribution but polarized over low-skill immigration. Notably, there is a sharp increase in the share of individuals supporting the welfare state but heavily opposing immigration. In order to provide an economic explanation for these phenomena, we present a model where support for both immigration and redistributive policies are potentially motivated by altruism. Using this model, we show how rising unemployment rates, shares of foreign-born citizens and aggregate education can explain observed shifts in policy preferences.

Keywords: Redistribution; Immigration; Unemployment; Inequality.

JEL-codes: F22; H20; O15

58 pages, October 1, 2015

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