EUROPE - Immigration won't come to the rescue of Europe's pay-as-you-go pension systems, argues Harvard professor Martin Feldstein.

He refutes arguments that immigrants' taxes will help finance old people's benefits.

Writing in the Financial Times, he says: "However, a little analysis shows that even a very large increase in immigration would have only a very small impact on the revenue needed to deal with the ageing population.

"Much of the tax paid by the new workers would be needed to finance the government benefits that they and their families consume - especially for healthcare and education. It is necessary, therefore, to ask how much net revenue is created by immigration and how that additional revenue relates to the increased number of immigrants."

Feldstein presented the example of Spain and concluded that increased immigration would provide only temporary relief to a permanent fiscal problem.

"The ageing of the Spanish population and the slower growth of the labour force will persist in the long term," he says.

"The extra immigrants in the next decade would provide net revenue temporarily but would eventually receive retirement pensions and healthcare that absorb the extra taxes that they pay. It would take a continuing increase in the number of immigrants to achieve even the relatively small additional revenue that I have described."

He concludes: "The only way to avoid either significantly higher tax rates or substantially lower retirement incomes is to shift from a pure tax-financed system to one that supplements the tax-financed benefits with increased saving and investment.

"It is not too late to begin a transition from a pure pay-as-you-go system to a mixed system, but it will be progressively more difficult to do so as the population ages."

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