Public Health and Optimal Trade Policy: The Role of Immigration

Abstract

ABSTRACT We determine the optimal tariff in the presence of immigration and public health provision in a factor‐abundance‐driven trade model, and we prove two results. First, ceteris paribus , a higher value of immigrant output, a more efficient or cheaper public health service, or a lower level of immigration (which occurs if the wage in the recipient country is not significantly higher than that in the sourcing country) may lead to more restrictive trade policies compared to the benchmark of no immigration and no public healthcare provision. Second, contrary to conventional wisdom, all else being equal, trade in goods and factors may be complements under a lower value of output creation by immigrants, a more inefficient or expensive public healthcare system, or a higher level of immigration.