Immigrant Voters, Taxation and the Size of the Welfare State

76 Pages Posted: 28 Aug 2018

See all articles by Arnaud Chevalier

Arnaud Chevalier

University of London - Royal Holloway College

Benjamin Elsner

IZA Institute of Labor Economics

Andreas Lichter

IZA

Nico Pestel

IZA Institute of Labor Economics

Abstract

This paper studies the impact of immigration on public policy setting. As a natural experiment, we exploit the sudden arrival of eight million forced migrants in West Germany after World War II. These migrants were on average poorer than the West German population, but unlike most international migrants they had full voting rights and were eligible for social welfare. Using panel data for West German cities and applying difference-in-differences and an instrumental variables approach, we show that local governments responded to this migration shock with selective and persistent tax raises as well as shifts in spending. In response to the inflow, farm and business owners were taxed more while residential property and wage bill taxes were left unchanged. Moreover, high-inflow cities significantly raised welfare spending while reducing spending on infrastructure and housing. Election data suggest that these policy changes were partly driven by the political influence of the immigrants: in high-inflow regions, the major parties were more likely to nominate immigrants as candidates, and a pro-immigrant party received high vote shares. We further document that this episode of mass immigration had lasting effects on people's preferences for redistribution. In areas with larger inflows in the 1940s, people have substantially higher demand for redistribution more than 50 years later.

Keywords: migration, taxation, spending, welfare state

JEL Classification: J61, H20

Suggested Citation

Chevalier, Arnaud and Elsner, Benjamin and Lichter, Andreas and Pestel, Nico, Immigrant Voters, Taxation and the Size of the Welfare State. IZA Discussion Paper No. 11725. Available at SSRN: https://ssrn.com/abstract=3238550

Arnaud Chevalier (Contact Author)

University of London - Royal Holloway College ( email )

Senate House
Malet Street
London, TW20 0EX
United Kingdom

Benjamin Elsner

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

HOME PAGE: http://www.benjaminelsner.com

Andreas Lichter

IZA ( email )

No Address Available

Nico Pestel

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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