The Fiscal Impact of Immigration
48 Pages Posted: 10 Oct 2014
Date Written: July 23, 2014
The fiscal impact of immigration — how immigrants and their descendants affect government budgets — is a widely debated and contentious issue. Economists overwhelmingly accept the economic gains of immigration, but are less certain about immigrants’ impact on government budgets. Contention over this issue is fueled by the numerous methodologies and complexity of analysis that obscure the fiscal costs of immigration.
The complexities are many. Each layer of the United States’ federal structure of government — federal, state, and local — is funded by different types of taxes and each spend their budgets on different programs and in different ways.
The types of public goods consumed by immigrants also affect their fiscal impact. If the public goods are “pure,” meaning that they are non-rivalrous and non-excludable, then more taxpayers in the form of immigrants spread out the tax cost without diminishing the quality of the goods. Immigrants lower the tax burden of providing pure public goods. But, if the public goods are “congestible,” more immigrants could decrease the quality of the goods, prompting the government to spend more tax dollars to maintain the quality. Some congestion occurs for most government-supplied goods whenever population increases, by immigration or through procreation, but the fiscal impact varies widely.
Immigrants also impact the U.S. economy. They can displace U.S.-born workers, complement them, or have little impact on their employment opportunities, all of which alter tax revenue and government welfare expenditures in different ways. Immigrants are also consumers of real estate and other goods and services in the United States, boosting aggregate demand and spurring investment that further grows the taxable economy.
The methodologies employed to study the fiscal impact of immigration are also numerous and complicated. This chapter will examine these methodologies’ relative merits and demerits, and present the common findings of the major studies using the various methodologies.
Keywords: dynamic economic effects of immigration, unauthorized immigrants, immigrant welfare benefits
JEL Classification: J15, J6, J61
Suggested Citation: Suggested Citation