Do Immigrants Impact Local Public Finances? Evidence from Belgium

This paper estimates the causal impact of immigration on municipal public finances in Belgium, between 2005 and 2018. Using administrative data on local revenues and expenditures, we study how immigration affects tax collection and public spending (in per capita terms). To address endogeneity, we use an instrumental-variable strategy exploiting historical settlement patterns. While, on average, immigration is associated with lower municipal expenditures and unchanged to slightly lower revenues, these aggregate effects conceal sharp differences: Immigrants from EU countries slighlty increase municipal revenues without significantly affecting expenditures. In contrast, immigration from non-EU countries leads to reductions in: revenues, largely due to a narrower tax base; and in spending, overall and specifically on security and social assistance. The decline in social spending affects non-European immigrants significantly more than Belgian residents, suggesting that municipalities try to shield natives when they face immigration-induced fiscal pressure.