In recent years, immigration has become increasingly central to public debate. Fears about its economic, social and cultural consequences have fuelled the electoral success of far-right parties and of all those political entrepreneurs who profit from peddling simple solutions to complex problems. These fears and concerns should not be dismissed, as they often have legitimate grounds and tend to be felt most acutely by the most vulnerable groups in host countries.
Still, responding properly to one of the most important social phenomena of our time means addressing it seriously, and being willing to tell some uncomfortable truths. European countries are trapped in a vicious circle of low growth, ageing populations and high public debt. In recent days we have even witnessed the return of the bond vigilantes, and government bond yields are making headlines again.
In this paper, just published in the International Review of Economics and Finance, Giovanni Carnazza and I examine immigration within the broader picture of the challenges facing European societies. Our analysis, which combines a theoretical model with an empirical application, reveals a fiscal-demographic trilemma: a country cannot simultaneously keep additional migration very limited, create substantial additional fiscal space, and stabilise or rapidly reduce its debt-to-GDP ratio. The trade-off is especially tight for countries combining high debt with a shrinking working-age population, such as Italy. Here the link to the paper.