The Costs of Building Walls: Immigration and the Fiscal Burden of Aging in Europe

with Francesco Franco and Luís Teles Morais

[CGO WP]  [Slides]


How much can immigration help relieve the burden of aging on public finances? Combining multiple survey data sources, we estimate the demographic profile of the government budget and build customized population projections for each country of the Euro area, by age, gender, skill level, and country of birth groups. This allows us to measure the pressure imposed on public finances by population aging. Keeping net migration at its 2019 level, ensuring fiscal sustainability requires a permanent tax increase of 12.7 percent, on average, across Euro area countries. Our main finding is that the relationship between the intensity of net migration flows and the fiscal burden of aging is negative, nonlinear, and convex. Building walls has high costs: shutting down migration would increase this measure by 16% (2.1 percentage points). In contrast, increasing migration helps to close the gap, but has diminishing returns in moderating the rise in the dependency ratio, and therefore the pressure on public finances. Still, the potential of migration largely outweighs that of policies promoting fertility, which have close to zero net effect on the fiscal burden of aging currently faced by European countries.

A Temporary VAT Policy Change in Three Acts: Announcement, Implementation, and Reversal

with Ricardo Duque Gabriel, João Quelhas and Márcia Silva-Pereira

[WP SSRN[WP BdP]  [Ungated]  [Slides]  [Twitter thread]

Media Coverage: Visão, ECO, Jornal de Negócios, Observador, Público, RTP, and SIC (all in Portuguese) 


We investigate the pass-through of a Value-Added Tax (VAT) decrease to consumer prices, using Portugal's temporary cut in VAT for a subset of food items in 2023 as a laboratory. Exploiting a novel high-frequency dataset of online retail prices, we use an event study approach to analyze price dynamics across the complete policy lifetime. We find that prices rose by around 1% upon announcement, that the pass-through was almost complete when the policy was implemented, and that the pass-through was approximately 70% at the reversal of the policy. The price reduction was highly persistent over the entire duration of the policy. We estimate that the policy decreased month-on-month inflation by 0.7 percentage points. We find evidence of deflation in producer prices around the implementation, which could be a potential mechanism driving the high pass-through.


The Heterogeneous Effects of Supply Shocks in Necessity Goods

with Pedro Brinca, Saman Darougheh and Márcia Silva-Pereira

Monetary Policy and Household Wealth Portfolios

with Pedro Brinca, Ana Melissa Ferreira, Hans Holter, Luís Teles Morais and Mariana N. Pires


Asset Liquidity and Fiscal Consolidation Programs (Pre-PhD)

Notas Económicas (2020)

[Working Paper[Published version]  [Slides]


We argue that the relationship between wealth inequality and fiscal multipliers depends crucially on the type of fiscal experiment used as well as on the measure of the wealth distribution. We calibrate an incomplete-markets, overlapping generations model to different European economies and use Household Finance and Consumption Survey (HFCS) data to compare fiscal multipliers when models are calibrated to match the distribution of liquid vs. net wealth. We find a negative relationship between fiscal multipliers and wealth inequality when considering fiscal consolidation programs, in contrast to fiscal expansions experiments which are standard in the literature. The underlying mechanism relies on the relationship between the distribution of wealth and the share of credit constrained agents. We examine the role of households’ balance sheet compositions regarding asset liquidity and find that when calibrating the model to match liquid wealth, the relationship between wealth inequality and fiscal multipliers is much stronger. 


Public Finances: an Intergenerational Perspective

Fundação Calouste Gulbenkian (2020)

[Webpage]  [Report[Relatório]