Working Papers and Work in Progress
"A Dynamic Push-Pull Model of Equilibrium Unauthorized Migration". Submitted Draft (7/16/25) Paper_Push_Pull_7/16/25 Presentations Slides WEAI on 6/21/25
Abstract. This paper constructs a dynamic micro-founded model for the study of equilibrium unauthorized immigration. Agent's decision to migrate considers income in their home country and expected income abroad given the realization of a migration sunk cost and taking into account the probabilities of border and inland enforcement actions that might lead to deportation in an infinite horizon context. The model produces a migration decision-rule and equilibrium unauthorized immigration flows consistent with push and pull factors of migration. Under sunk costs that are uniformly distributed the model yields an analytic solution. Empirical implications of this theory are studied with calibrated versions of the model for Mexico, Honduras, Guatemala and El Salvador for the decade of the 1990s. The quantitative exercises find support for the theory. For Mexico, stagnant unskilled wages after the peso crisis (as opposed to GDP per capita which recovered relatively quickly), combined with rising unskilled wages in the US and strong Mexican population growth explain almost 80% of the change in unauthorized immigrants during the decade."An OLG model with endogenous but distinct power-laws in earnings and wealth". R&R at Economics Letters. Paper_OLG_PowerLaws Draft 9/7/25
Abstract. This paper presents an OLG model that obtains power laws with increasing degrees of Pareto-inequality for wages, earnings and wealth. Wages and earnings endogenously follow power laws due to a CES-labor production technology as in Lopez-Velasco (2024). Earnings are more unequal than wages due to an elastic response of labor supply, and top-wealth has a fatter tail than earnings because agents with higher earnings also devote more time to "investment activities" which yield higher returns for richer agents. Contrary to frameworks that use a Kesten process to explain power laws, wealth inequality importantly depends on the level of earnings inequality."The effect of introducing a guest worker program on equilibrium unauthorized immigration". In progress. WEAI Presentation Slides on 6/24/25
Abstract. This paper builds a dynamic model of endogenous migration decisions for the study of equilibrium unauthorized migration. Agents decide sequentially over whether to migrate to a more developed economy or whether to stay in their country in an environment where agents face a sunk-cost of migration and subject to border and inland enforcement actions that lead to deportation. Introducing a guest worker program in the form of a lottery leads to conflicting effects: Some of the agents that would otherwise migrate in an unauthorized fashion would now decide to stay in their home country in the presence of the lottery; however, the lottery also induces some agents that would not consider migrating in an unauthorized fashion to apply for the guest worker lottery. The paper studies conditions under which the presence of the guest worker program leads to a lower/higher share of unauthorized immigrants living in the host economy as well as circumstances under which the presence of a guest worker program is likely to lead to a lower enforcement cost as opposed to a case of an exclusively-enforcement regime."A Dynamic Model of Equilibrium Unauthorized Immigration: The Economics of Push-Pull Factors of Immigration". Draft 12/17/2024 PaperDynModelPush121724
Abstract: This paper constructs a model for the study of the incentives of potential unauthorized immigrants and their associated equilibrium immigration flows. Agents in a foreign economy decide whether to migrate to a more developed host country or whether to stay in their home country, based on a dynamic program that considers the current idiosyncratic sunk cost of migration and additional expected cost and benefits of migration that include the possibility of random return or deportation. The model produces a migration decision rule consistent with push and pull factors of immigration. The equilibrium probability of migration and share of current foreigners deciding to migrate are invariant to scaling effects in the income and cost variables. Numerical parameterizations of the model demonstrate the effects of several push and pull factors into the equilibrium immigration stocks and flows."Immigration and Redistribution in a Stylized Democracy". Draft date: November 2024.
Abstract. This paper studies the political economy of redistribution and immigration under a stylized general equilibrium model with a distribution of worker types. The wages of the agents are interdependent. They like consumption and leisure and vote over redistribution and immigration under different settings. An exogenous increase in the number of a given type of agents has an effect of increasing the wages of all the other types, and an effect on transfers that depend on whether the compensation of the migrating type is above average compensation in the economy. The tax rate politically chosen decreases in immigration of same or lower skill levels of the median voter, while the effects of more skilled immigrants depend on the specific parameterization. When choosing immigration under exogenous redistribution, a high tax rate would induce an equilibrium of low immigration, with opposite effects under a low tax rate. When the choice is over both immigration and redistribution, the pool of unskilled immigrants would dictate the type of regime: high immigration/low taxation or low immigration/high taxation.
Publications
"On the Design of an Optimal Immigration Policy". Economic Inquiry (2025), 63(1), 47–97. Draft date: 07/30/2024 Draft : Optimal_Immigration
Replication Files: Available at https://www.openicpsr.org/openicpsr/project/209148/version/V1/view
Abstract: This paper constructs a model for the study of an optimal immigration policy from the native's perspective. Natives have preferences over redistributive transfers, a common resource subject to congestion, and over the level of family-based migration. Border enforcement is costly. The optimal immigration policy has interdependent levels of the different types of immigration (skill-based, family-based and unauthorized) and uses skill-based migration as a "shock-absorber" to negative demographic and economic shocks. In a parameterized version of the model for the US, skill-based and unauthorized migration are highly dependent on the economy, while family-based migration is not."Markov Equilibrium of Social Security: An Analytic Solution Under CRRA Utility and the Future of Social Security. Economic Modelling (2024), Vol 132, Article 106655, DOI https://doi.org/10.1016/j.econmod.2024.106655. Draft on 12/17/2023 : MarkovCRRAPaper
Replication Files: Available at DOI:10.17632/35wpkffzsj.1
Abstract: The politico-economic sustainability of pay-as-you-go social security has been studied with the help of 2-period overlapping generation models and Markovian equilibrium concepts. The literature has mostly used logarithmic utility for its tractability, while versions under the more general isoelastic CRRA-utility have only been analyzed computationally. This paper demonstrates that a prototypical social security model under CRRA-utility has a closed-form solution; it revisits conclusions computationally obtained previously and presents new findings and extensions. Quantitatively, the model can explain the observed path of payroll tax rates in the US and predicts that tax rates will increase as the equilibrium response to lower future population growth rates. The model predicts a gradual increase in tax rates from the current 12.4% to about 15% or so in 2060 and then stabilizing at that level. Benefits are expected to decrease slowly, decreasing at about 2% (or less) per decade starting in 2030."Neoclassical Production, Scarcity of Skills and Pareto Distributions". Economics Letters (2024), Vol 234. Article 111495. DOI https://doi.org/10.1016/j.econlet.2023.111495. Paper: Pareto_2023
Abstract: The distribution of top earnings follows a "power-law": the top tail of the distribution is thick relative to other distributions and is approximately Pareto-distributed. There are different mechanisms proposed in the literature that yield Pareto distributions and power-laws. This paper shows that a simple general equilibrium model where aggregate production is assumed of the constant-elasticity-of-substitution (CES) type over multiple labor inputs generates distributions in earnings and wages that follow power-laws. The finding is very general as the distribution of the skill-types is irrelevant for the shape parameter (the Pareto exponent) of the power-law. The model displays a tight relationship between the Pareto exponent and the elasticity of substitution between the labor inputs. Available empirical estimates of the elasticities of labor substitution and of the labor supply predict a Pareto exponent consistent with its empirical counterpart for the distribution of earnings in the US."Social Security as Markov Equilibrium in OLG Models: Clarifications and Some New Insights". Economics Letters (2022), Vol 217. August. Article 110707 . Working Paper SS Markov Log-utility Paper
Abstract: This paper studies the politico-economic sustainability of pay-as-you-go social security in OLG models under Markovian strategies as first studied by Forni (2005). Under logarithmic utility, the paper shows that equilibria with social security can only exist if the underlying economy is dynamically inefficient. The paper also derives the exact parametric conditions that allow for the existence of equilibria and shows that among all the admissible (arbitrary) constants that produce a Markov perfect equilibrium, the maximum constant in such set yields the only equilibrium that solves dynamic inefficiency."Voting over Redistribution in the Meltzer-Richard model under Interdependent Labor Inputs". Economics Letters (2020), Vol 192, July. Article 109206. Working Paper Version Voting_Redistribution
Abstract: This paper extends the median voter result of Meltzer and Richard (1981) to the case where a labor economy has any constant returns to scale production function under quasilinear preferences with constant wage elasticity. Average productivities of the different labor inputs depend on their relative abundance in the economy. Agents are heterogeneous due to their labor type and (given type) due to their relative efficiency. They vote over income tax rates which in turn dictate the level of redistribution. The paper shows that preferences over tax rates are single-peaked and hence the median voter theorem applies. This framework connects the scarcity of inputs to the most preferred tax rates."Immigration and Demographics: Can High Immigrant Fertility Explain Voter Support for Immigration?" (2019), with Henning Bohn. Macroeconomic Dynamics 23(5), 1815-1837. doi:10.1017/S1365100517000463. Working Paper version: Demo_Imm_Paper . Online Appendix to Published Version: Online_Appendix
Abstract: First generation immigrants to the United States have higher fertility rates than natives. This paper analyzes to what extent this factor provides political support for immigration, using an overlapping generation model with production and capital accumulation. In this setting, immigration represents a dynamic trade-off for native workers as more immigrants decrease current wages but increase the future return on their savings. We find that immigrant fertility has surprisingly strong effects on voter incentives, especially when there is persistence in the political process. If fertility rates are sufficiently high, native workers support immigration. Persistence, either due to inertia induced by frictions in the legal system or through expectational linkages, significantly magnifies the effects. Entry of immigrants with high fertility has redistributive impacts across generations similar to pay-as-you-go social security: initial generations are net winners, whereas later generations are net losers."Intergenerational Mobility and the Political Economy of Immigration" (2018), with Henning Bohn. Journal of Economic Dynamics and Control 94, September 2018: Pp 72-88. Article: InterGenMobility.pdf . DOI: https://doi.org/10.1016/j.jedc.2018.07.005 . Online Appendix to Published Version: Appendix_InterMobility
Abstract: Flows of US immigrants are concentrated at the extremes of the skill distribution. We develop a dynamic political economy model consistent with this observation. Individuals care about wages and the welfare of their children. Skill types are complementary in production. Voter support for immigration requires that the children of median-voter natives and of immigrants have sufficiently dissimilar skills. We estimate intergenerational transition matrices for skills, as measured by education, and find support for immigration at high and low skills, but not in the middle. In a version with guest worker programs, voters prefer high-skilled immigrants but low-skilled guest workers."Tax Smoothing with Immigration in an Overlapping Generations Economy" (2019). Applied Economics Letters 26 (6), 2019, Pp 460 - 464, (Available online on 6/21/2018). https://doi.org/10.1080/13504851.2018.1486975. Article: TaxsmoothingPaperOk.pdf. Online Appendix to Published Version: TaxSmoothImm_OnlineAppendix.pdf
Abstract: Immigration policy in an overlapping generations economy is politically determined in response to government spending shocks, where the government finances its spending with proportional income taxes and is subject to a balanced budget. The young cohort is always the majority and dictates policy. The equilibrium Markovian strategy allows immigrants when the spending shock is above some threshold and this implies a particular form of tax smoothing."Solving Dynamic Inefficiency with Politically Sustainable Guest Worker Programs" (2016). Economics Letters, Vol 148, Pp 1 - 4 [Lead Article], November 2016. Article: DynIneff_GW_Pub.pdf . Online Appendix to Published Version: Appendix_only.pdf. Working paper version: Dynamic_Inefficiency_AL_WP_OK.pdf
Abstract: An overlapping generations economy that is dynamically inefficient can solve the inefficiency by allowing foreign guest workers every period in order to decrease capital per worker. These policies increase the welfare of all generations and can be politically supported by a young majority under Markov and under trigger strategies that “reward” or “punish” the behavior of previous generations.Book Chapters and Other Publications
"The use (and misuse) of tariffs in North America: A new trade war? Center for Border Economic Studies, Border Business Briefs, 20(1), Spring 2025. Joint with Maroula Khraiche and Jean-Baptiste Tondji. Available at https://www.utrgv.edu/rcvcobe/research/center-for-border-economic-studies/cbest-publications/cbest_bbb_spring-2025-vol-20-n_1.pdf
Abstract: Trade wars may have started. At the time this report was published, the Trump administration had threatened, then paused, a 25 percent tariff on Canadian and Mexican goods. Before the pause, Mexico and Canada were preparing retaliatory tariffs. After the pause, Trump ordered a 25 percent import tax on all steel and aluminum entering the United States to start in March 2025 and announced a plan for tariffs on US trading partners. In this brief, we document the different perspectives and economic consequences of North American trade wars and beyond."Endogenous Immigration Policy in a Stylized Political Economy", in Robert Sauer, Editor World Scientific Handbook of Global Migration. April 2024, 141-164 . World Scientific Publishing. Working paper: EndogenousImmigration.pdf
Abstract: This paper studies the political economy of immigration in an overlapping generations model with neoclassical production, capital accumulation and pay-as-you-go social security. Immigrant types are either skilled or low-skilled; the former are more productive but have a low fertility rate and the latter are less productive but have a high fertility rate. The old/retiree is in favor of a maximum level of skilled immigration as it helps with the return on capital and with the pension. The young is either in favor of no immigration or a low level of low-skilled immigration since that type helps more in the future with both the social security system and the future return on capital. The model predicts that aging and the retirement of baby boomers are forces that will tend to tilt immigration systems towards skilled-based systems. For countries where the majority is given by the workers, immigration of low-skilled workers is higher the lower the fertility rate of natives, the higher is the fertility rate of immigrants, and the lower the productivity of the low-skilled immigrants is."On the Design of an Optimal Immigration Policy", Lopez-Velasco, A. R. (2024, March 5). Center for Growth and Opportunity Working Paper.
Available at https://www.thecgo.org/research/on-the-design-of-an-optimal-immigration-policy/
Abstract: This paper constructs a model for the study of an optimal immigration policy from the native’s perspective. Natives have preferences over redistributive transfers, a public good subject to congestion, and over the level of family-based immigration. Border enforcement is costly. The model derives conditions for an optimal immigration policy by balancing skill-based against family-based immigration, equalizing the fiscal opportunity cost of unauthorized immigration with the marginal cost of enforcement, and balancing the effects of immigration on transfers against congestion effects on the public good. In calibrated versions of the model to the United States experience, family-based immigration is not responsive to changes in parameters, while skill-based immigration and unauthorized immigration are. The predictions of the model regarding the period 1994-2008 are consistent with immigration reform projects at the time that left family-based immigration unchanged, increased skill-based permits, and devoted more resources to enforcement."A snapshot of Immigration Flows into the US" (2023), Center for Border Economic Studies, Border Business Briefs, Fall v19, n1. Available at https://www.utrgv.edu/rcvcobe/_files/documents/pdf/fall-2023.pdf
Summary: This piece examines the time series on the different types of immigration flows into the US since 2000, focusing on the challenges of the current system. It highlights how the composition of unauthorized migration has changed over time, with a smaller representation from Mexico and now many countries from afar represented. The report elucidates the institutional factors that are producing the observed composition of the immigration flows.Publications in Spanish
“La ley de Concursos Mercantiles en Mexico: Algunas Reflexiones a 4 años de su entrada en vigor” (The new bankruptcy law in Mexico: some reflections since enacted 4 years ago) with Leonado Torre Cepeda. Ensayos Vol. XXIII (2004) Nov, Pp: 1-28.
“El Mercado Telefónico en México: 10 años después de la Privatización de Telmex” (The Telephone Market: 10 years after the Privatization of Telmex) with Leonado Torre Cepeda. Ensayos, Vol. XIX, Nov 2000, pages 1-48.