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Immigration and public spending

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We examine the effect of immigration on public spending from a theoretical (political economic) and an empirical perspective. We distinguish between public spending on private goods and on public goods. Our model implies that whether immigration increases or decreases public spending primarily depends on native’s preferences for private versus public good spending. We empirically test our theoretical hypotheses, the `fiscal effect’ and the `anti-social effect’ of immigration using OECD panel data for 1990--2001. Estimating a system of simultaneous equations for total public spending and the share of spending on private goods, we find evidence for a negative effect of low-skilled immigration on public spending which is attributable to an anti-social effect. The effect of high-skilled immigration on public spending is positive, as suggested by a fiscal effect.

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Paper provided by Department of Economics, Johannes Kepler University Linz, Austria in its series Economics working papers with number 2005-12.

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Date of creation: Dec 2005
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Handle: RePEc:jku:econwp:2005_12

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Keywords: immigration; cash transfers; public goods;

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  1. Alberto Alesina & Reza Baqir & William Easterly, 1999. "Public Goods And Ethnic Divisions," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1243-1284, November.
  2. Madeline Zavodny, 1997. "Welfare and the locational choices of new immigrants," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q II, pages 2-10.
  3. CREMER, Helmuth & PESTIEAU, Pierre, . "Factor mobility and redistribution," CORE Discussion Papers RP -1749, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Assaf Razin & Effraim Sadka & Phillip Swagel, 1998. "Tax Burden and Migration: A Political Economy Theory and Evidence," NBER Working Papers 6734, National Bureau of Economic Research, Inc.
  5. Borjas, George J, 1999. "Immigration and Welfare Magnets," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 607-37, October.
  6. Assaf Razin & Efraim Sadka & Phillip Swagel, 2001. "The Aging Population and the Size of the Welfare State," NBER Working Papers 8405, National Bureau of Economic Research, Inc.
  7. Rodrik, Dani, 1996. "Why do More Open Economies Have Bigger Governments?," CEPR Discussion Papers 1388, C.E.P.R. Discussion Papers.
  8. Erzo F.P. Luttmer, 1999. "Group Loyalty and the Taste for Redistribution," JCPR Working Papers 61, Northwestern University/University of Chicago Joint Center for Poverty Research.
  9. James M. Poterba, 1996. "Demographic Structure and the Political Economy of Public Education," NBER Working Papers 5677, National Bureau of Economic Research, Inc.
  10. Boeri, Tito & Hanson, Gordon H. & McCormick, Barry (ed.), 2002. "Immigration Policy and the Welfare System: A Report for the Fondazione Rodolfo Debenedetti," OUP Catalogue, Oxford University Press, number 9780199256310, September.
  11. Phillip Swagel & Efraim Sadka & Assaf Razin, 2002. "The Aging of the Population and the Size of the Welfare State," IMF Working Papers 02/68, International Monetary Fund.
  12. Ribar, D.C. & Wilhelm, M.O., 1992. "Welfare Generosity: The Importance of Administrative Efficiency, Community Values and Genuine Benevolence," Papers 11-92-2, Pennsylvania State - Department of Economics.
  13. Deininger, Klaus & Squire, Lyn, 1996. "A New Data Set Measuring Income Inequality," World Bank Economic Review, World Bank Group, vol. 10(3), pages 565-91, September.
  14. Orr, Larry L, 1976. "Income Transfers as a Public Good: An Application to AFDC," American Economic Review, American Economic Association, vol. 66(3), pages 359-71, June.
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Cited by:
  1. Hunt, Gary L. & Mueller, Richard E., 2010. "Returns to Skill, Tax Policy, and North American Migration by Skill Level: Canada and the United States 1995 - 2001," CLSSRN working papers clsrn_admin-2010-11, Vancouver School of Economics, revised 26 Mar 2010.
  2. Corrado Giulietti & Jackline Wahba, 2012. "Welfare Migration," Norface Discussion Paper Series 2012038, Norface Research Programme on Migration, Department of Economics, University College London.
  3. Karin Mayr, 2006. "Optimal budget deficits and immigration," Economics working papers 2006-19, Department of Economics, Johannes Kepler University Linz, Austria.

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