Immigration and PAYGO pension systems in the presence of increasing life expectancy

Through an Overlapping Generations Model, this paper studies the e ects of migratory ows on a pay-as-you-go (PAYGO) pension system in the presence of linear increase in life expectancy over time. As a result, we obtain that immigration is likely to induce distributional con- ict between di erent groups in society. The increasing number of contributors due to immigration will result in higher pension bene ts for both retirees and older workers. Future immigrant's pension claims imply that younger workers will either gain or lose from immigration depending on the immigrants' labour productivity. In case of small increase in life expectancy immigration increases the welfare of the majority of population, given by retirees and older workers. On the other hand, in the presence of high increase in life expectancy immigration may a ect negatively the welfare of the majority of population in the absence of further parametric reforms of the pension system.