A migration model with congestion costs: Does the size of government matter?

We present a migration model where public expenditure increases private productivity, although being subject to congestion costs. Within this framework, we analyze the influence of the public sector on migration. On one hand, we find a nonmonotonous relationship between government size and cumulative migration: an increase in public activity increases the entry of migrants for small sizes of government, but reduces the cumulative immigration for large sizes, a theoretical result supported by recent OECD data. On the other hand, measures devoted to increase migration costs delay the migration inflow only temporarily, with the only permanent effect being a widening in wage differentials. (C) 2007 Elsevier B.V. All rights reserved.