International migration, the provision of public goods, and welfare

Abstract

This paper highlights the importance of the 'public finance' aspects of international migration on wages and welfare. We construct a general equilibrium model of a labor-exporting (i.e., source) or of a labor-importing (i.e., host) country with identical consumers, producing many private traded goods and one public consumption good. Within this framework, it is shown that contrary to the existing literature, international migration may have adverse effects on wages and welfare in both countries, even if commodity prices are constant. The analysis describes and explains the conditions under which these adverse effects may occur.