Estimating the Effect of Immigration on Public Finances: Evidence from the Influx of Venezuelan Migrants to Colombia

Abstract

We investigate the fiscal impact of immigration on the Colombian economy from 2013 to 2018 using an accounting approach and exploiting the large and sudden increase in inflows from Venezuela. In other words, we estimated the difference between the taxes and other contributions migrants make to public finances and the costs of the public benefits and services they receive. Our findings show that immigrants tend to have less access to, and make lower use of, the welfare system, and do not suggest strong evidence of immigrants imposing a higher burden to public finances relative to natives. When we consider only Venezuelan immigrants, consisting of both the Venezuelan-born population and those native-born returnees arriving from Venezuela, our estimates indicate that while they have a less favorable net fiscal position relative to natives, which is driven by the net contributions to regional and local government budgets, their overall fiscal effect is fairly modest in terms of GDP. When we considered the effect that demographic characteristics play on explaining the differences in the net fiscal contributions among groups, our results suggest that the higher fiscal impact of Venezuelan-born immigrants is driven by recent arrivals, as they contribute on average less in terms of income taxes and social security contributions and have a higher reliance for group expenditures. In contrast, immigrants that have been in the country for more than a year have—if any—a better per capita fiscal position than natives. Finally, since migration is not distributed uniformly across space, the fiscal effects at the local level are not homogeneous. We show that the fiscal effects on local budgets are mediated by two forces: cities’ fiscal effort (the ability to raise revenues from their own sources) and the share of immigrants in the local population.