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NIESR: Lower output and higher taxes - the impact of reducing immigration

New research published recently by NIESR shows that significant reductions in immigration should the UK leave the EU would lead, in the long run, to lower GDP per capita; this in turn would necessitate higher taxes. However, although the impact is significant it is not quantitatively large and would take a considerable time to materialise.

The model used in this research brings together labour market, fiscal and other macroeconomic effects into one framework. It also adds a dynamic perspective, differentiates between natives and different categories of immigrants and captures compositional effects resulting from immigrants’ different age and qualification profiles. These features make this research the most comprehensive analysis of the long-term impacts of immigration on the UK economy to date.

The paper compares “Leave” and “Remain” scenarios for migration to the UK after the referendum, and assesses their macroeconomic impacts. “Leave” assumes that net migration from the EU countries will decline by two thirds compared to “Remain”. By 2065, in the Leave scenario, aggregate GDP and GDP per person are 9% and 1% lower respectively compared to the “Remain” scenario. Reduced migration after leaving the EU has a significant negative impact on the public finances, primarily because of a higher dependency ratio, which is the fraction of young and old people of the total population.  Accordingly government spending rises as a share of GDP by 1.1 percentage points in 2065, requiring an increase in taxation of about £400 per person (2014 pounds). As a result, post-tax wages are 2% lower in the Leave scenario.

Leaving the EU would have a rage of economic consequences for the UK. This paper only looks at the effects associated with the possible change in migration policy.

Katerina Lisenkova said: "Our research shows that lower migration has an overall negative effect on the UK economy. In general EU immigrants benefit the UK economy for two main reasons – they are on average much younger and are more highly qualified than the general population."

Notes:

The research paper is entitled “The long-term macroeconomic effects of lower migration to the UK”.

For a full copy of this paper, please contact the NIESR Press Office:
Luca Pieri on 020 7654 1931 / l.pieri@niesr.ac.uk  

To discuss the article, please contact:

  • Katerina Lisenkova: k.lisenkova@niesr.ac.uk or 020 7654 1951

NIESR aims to promote, through quantitative and qualitative research, a deeper understanding of the interaction of economic and social forces that affect people's lives, and the ways in which policies can improve them.

Further details of NIESR’s activities can be seen on http://www.niesr.ac.uk or by contacting enquiries@niesr.ac.uk Switchboard Telephone Number: +44 (0) 207 222 7665

 

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