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Immigration and Public Spending

  • Böheim, René

    ()

    (University of Linz)

  • Mayr, Karin

    ()

    (University of Vienna)

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 Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1834.

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Length: 30 pages
Date of creation: Nov 2005
Date of revision:
Handle: RePEc:iza:izadps:dp1834
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  1. Razin, A. & Sadka, E. & Swagel, P., 2000. "The Aging Population and the Size of the Welfare State," Papers 2000-23, Tel Aviv.
  2. 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.
  3. 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.
  4. Erzo F. P. Luttmer, 2001. "Group Loyalty and the Taste for Redistribution," Journal of Political Economy, University of Chicago Press, vol. 109(3), pages 500-528, June.
  5. James M. Poterba, 1996. "Demographic Structure and the Political Economy of Public Education," NBER Working Papers 5677, National Bureau of Economic Research, Inc.
  6. Dani Rodrik, 1996. "Why Do More Open Economies Have Bigger Governments?," NBER Working Papers 5537, National Bureau of Economic Research, Inc.
  7. CREMER, Helmuth & PESTIEAU, Pierre, . "Factor mobility and redistribution," CORE Discussion Papers RP 1749, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Alesina, Alberto & Baqir, Reza & Easterly, William, 1999. "Public goods and ethnic divisions," Policy Research Working Paper Series 2108, The World Bank.
  9. 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.
  10. Klaus Deininger & Lyn Squire, 1996. "A New Data Set Measuring Income Inequality," CEMA Working Papers 512, China Economics and Management Academy, Central University of Finance and Economics.
  11. 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.
  12. Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999. "A Data Set on Income Distribution," CEMA Working Papers 575, China Economics and Management Academy, Central University of Finance and Economics.
  13. Borjas, George J, 1999. "Immigration and Welfare Magnets," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 607-37, October.
  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.
  15. 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.
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