Political economy of immigration policy: direct versus indirect political influence

In this paper, we develop a theoretical model that accounts for both interest groups' influence and citizens' preferences over the determination of immigration policy. Based on a common agency model of lobbying (Grossman & Helpman, American Economic Review, 84(4), 833-850, 1994), we analyze the setting of an immigration policy as a political compromise pressured by an industry lobby and a trade union that have opposed interests. They both lobby the government through direct influence by offering political campaign contributions. We also account for the impact of indirect political influence of populist movements that display anti-immigrant narratives in public discourse. The latter lead citizens to make inference errors over immigration effects. We investigate the policy distortion that results from the interaction between direct and indirect political influence. In doing so, we address the joint impact of economic and cultural considerations on immigration policy. Our model helps describe immigration policy switches in Germany and Sweden.