Are Immigrants a Burden for the State Budget? Review Paper

Abstract

The twentieth century is commonly acknowledged as the age of During the last 100 years population movements have intensified and, more importantly, their structure changed significantly. In terms of the geographical distribution of immigrants the European Union and traditional immigration countries became the most important target regions. In these countries immigration is commonly presented as a threat to host economies and societies. Along with this the fiscal impact of immigration are ones of the most controversial topics in recent debates on migration. Against this background this paper aims at discussing and synthesizing both theoretical and empirical literature on the fiscal impact of immigration. We hypothesize that the fiscal impacts of immigration are complex and dynamic and thus a proper assessment demands a careful empirical strategy. There is no clear or coherent theoretical framework to explain the fiscal effects of migration. The outcomes of empirical studies are mixed and they are not unequivocal. Notwithstanding, they show that, generally speaking, the fiscal impact of immigration is small. Moreover, there is no clear impact of skill level on the fiscal position of foreigners. What really matters is, instead, the type of migration, labor market incorporation (absorption) and the institutional framework at destination (the structure of the welfare state). In terms of empirical strategies we would recommend dynamic approaches, which account for the effects resulting from demographic aging.