The fiscal impact of immigration on the advanced economies

This paper is concerned with the advanced economies. It begins with a discussion of the demographic issues that have played such a large role in the debate on immigration. This is followed by a section on the main problems involved in estimating the fiscal impact of immigration and then a summary of the international evidence on this topic, mostly from Europe and America. Separate sections on the UK and on low-fertility countries follow. The main conclusions are as follows. Highly skilled migrants normally make a large fiscal contribution, whereas unskilled migrants are likely to impose a net cost on native taxpayers if they settle in the receiving country. However, even unskilled migrants may be net contributors if they eventually depart and make few claims on government expenditure while in the country. Most empirical studies find that the fiscal contribution of the immigrant population as a whole is quite small. The positive contribution of some migrants is largely or wholly offset by the negative contribution of others. This finding holds across a variety of countries and methodologies. Estimates of the net fiscal contribution of immigration normally lie within the range ±1 per cent of GDP. There are a few exceptions, but these refer to countries experiencing demographic collapse and they are based on unrealistic assumptions about the inter-generational allocation of future taxes and government expenditure. With more realistic assumptions, the overall fiscal benefit of immigration is quite small, even in these countries. These findings suggest that, in general, there is no strong fiscal case for or against sustained large-scale immigration. The desirability or otherwise of large-scale immigration should be decided on other grounds.