Entry Charges on Immigrants 1

Abstract

With a perfectly elastic supply of immigrants and no domestic distortions, the pure Pareto gains to residents from immigration are maximized by an open door immigration policy. The only role then for entry charges is cost recovery. With inelastic supply, charges may be levied for optimal tariff reasons although there are practical difficulties in estimating appropriate supply elasticities. Priceable externalities provide a rationale for charging if, and only if, there are difficulties in making discriminatory reimbursements of optimal toll revenues to residents. Otherwise, relevant externalities should be internalized via appropriate Pigovian taxes and discriminatory reimbursements paid to residents. Then, an open door policy without entry charges should be pursued. Transaction costs and unpriceable externalities provide a weak case for charging. Where quotas are imposed for political reasons or to ease potentially unfavorable distributional implications, there are convincing second-best arguments for fees and, equivalently, quota auctions. The latter policies are generally preferable to unpriced quotas and to asset tests, even if coupled with a fee, whatever the degree of international capital mobility. Independently of humanitarian concerns, liberal immigration policies can be based on the self-interest of residents provided immigrants pay all costs they impose on a resident population.