On the welfare impacts of an immigration amnesty

This paper aims to assess the effects of an immigration amnesty on agents' welfare by using a simple two-period overlapping generations model. Given that illegal immigrants play a role in the economy even before being regularized, an amnesty differs from new immigration. In the presence of labor market discrimination, capital holders are harmed as the acquisition of legal status increases the wage bill that they pay. The net fiscal effect strongly depends on the discrimination that illegal workers face ex ante. A calibration of the model on Germany and the United Kingdom highlights overall limited economic consequences of amnesty which can be contrasted to the effects of deportation and new legal immigration. In particular, when public welfare expenditures are low, amnesty and new immigration can increase native's welfare in the long run while deportation might harm less-educated agents.