WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

Katerina Lisenkova

This paper uses an OLG-CGE model for the UK to illustrate the long-term effect of migration on the economy. We use the current Conservative Party migration target to  reduce net migration “from hundreds of thousands to tens of thousands” as an illustration. Achieving this target would require reducing recent net migration numbers by a factor of about 2. We undertake a simulation exercise to compare a baseline scenario, which  incorporates the principal 2010-based ONS population projections, with a lower  migration scenario, which assumes that net migration is reduced by around 50%. The  results show that such a significant reduction in net migration has strong negative effects on the economy. By 2060 the levels of both GDP and GDP per person fall by 11.0% and 2.7% respectively. Moreover, this policy has a significant impact on public finances. To  keep the government budget balanced, the effective labour income tax rate has to be increased by 2.2 percentage points in the lower migration scenario.