Do Immigrants Impact Local Public Finances? Evidence from Belgium

This paper estimates the causal impact of immigration on municipal public finances in Belgium. Using administrative data on local revenues and expenditures, we study how immigration affects tax collection and public spending. To address endogeneity, we use an instrumental-variable strategy exploiting historical settlement patterns. We uncover substantial heterogeneity in fiscal effects by immigrants' skill composition. While, on average, immigration is associated with lower municipal expenditures and neutral to slightly negative 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 both revenues and spending, largely due to a narrower tax base that results in lower allocations for security and social assistance. This decline in social spending is accompanied by a redistribution of benefits away from non-European immigrants and toward Belgian residents, indicating that municipalities tend to cope with immigration-induced fiscal pressure by rationing welfare benefits rather than expanding their budgets.