Abstract Illegal immigration is a major policy challenge in Europe, in particular in countries on the external border of the EU such as Italy or Spain. However, there are likely to be important effects on the rest of the EU, too, depending on the policies against illegal immigration in border countries. This paper determines optimal enforcement and amnesty policies on immigration in a two-country, two-instrument setting with international spill-overs from onward migration within a federation, taking into account the interactions between the two types of policies. Among other results we find that total enforcement spending is too low to maximize joint welfare in the federation.