GMG, New York, 26 May 2015 The fiscal impact of immigration to OECD countries Thomas Liebig International Migration Division OECD (joint work with Jeffrey Mo)

Why is the fiscal impact of migration of interest? Immigrants account for a significant (13% on average) and growing part of the population of OECD countries, and their fiscal position can be expected to differ from that of the native-born –Different socio-demographic characteristics –Immigrants do not spend their entire life in the host country –Labour market outcomes are often less favourable than those of comparable native-born Most OECD countries face fiscal challenges, and these are expected to grow with ageing Will immigration aggravate these or can it play a role in addressing them? Concern over immigrants’ use of the welfare system

There is a strong association between public opinion on further migration and the perception of immigrants’ fiscal contribution Association between views on migration and the perception of migrants’ fiscal impact, selected European OECD countries, 2008 Source: Liebig and Mo (2013) on the basis of data from the European Social Survey.

Measuring the fiscal impact of immigration: Empirical approaches Static accounting: focus on the resident foreign-born population  Approach taken by Liebig and Mo (2013) –Comparing direct taxes and contributions paid (including by employers) with benefits received in a given year → net direct fiscal impact –Uncertainty about the allocation of other expenditure and revenue items - Attributable: health, education, active labour market policy // consumption taxes - Not easily attributable: general public administration, infrastructure, interest payments, defence, etc. // corporate income tax, etc. → inclusion or exclusion often changes the sign of the impact Dynamic modeling: focus on additional immigration flows –Impact over a lifetime perspective → Net transfer profiles –Impact on subsequent generations under budget constraints → Generational accounting Macroeconomic modeling: Indirect budget effects arising from the economic impact of migration → General equilibrium

International comparison of the fiscal impact - Challenges -  Heterogeneity of migrant populations across countries, notably regarding migrant category (labour, family humanitarian) and socio-demographic characteristics  Diversity of tax and benefit systems  Availability of comparable data providing information on place of birth as well as on taxes, contributions, benefits and income/expenditure  Look at immigrants (foreign-born), not foreigners  A complement to in-depth country studies, not a substitute

Empirical approach EU-Survey of Living and Income Conditions (EU-SILC) for the European OECD countries, except Switzerland; comparable national datasets for Australia (HILDA), Canada (SLID), Switzerland (SHP) and the United States (CPS) → 29 countries, 92% of OECD immigrant population –Differences in contributions (taxes and social security, including from employers) and benefits received at the household level Net (direct) fiscal contribution –No direct information on public expenditure for immigrants’ education, health and active labour market policy measures and on immigrants’ contributions in form of indirect taxes paid (VAT) Assumptions on the basis of information from other sources –Static accounting, to keep the number of assumptions down to a reasonable degree Data refer to the fiscal years (average over three years) Transformed into a single currency (€), PPP adjusted

Immigrant households’ net direct fiscal position is positive in most countries, but often below the native-born Net (direct) fiscal position of native-born and immigrant households, Euros, around 2008 Source: Liebig and Mo (2013). The negative impact in Germany is largely driven by the fact that its immigrant population is rather old in international comparison ([Spät-]Aussiedler; “Guestworker”, etc.)

There is disproportionate pick-up of social assistance, but not of unemployment aid Take-up of social benefits by immigrant relative to native-born households, by benefit type, selected OECD countries, around 2008 Source: Liebig and Mo (2013).

Immigrants’ less favourable fiscal position is driven by the contribution rather than the benefit side Estimated differences between immigrant and native-born households regarding taxes/contributions and benefits, excluding pension contributions and expenditures Immigrants pay or receive more Immigrants pay or receive less Source: Liebig and Mo (2013). This picture seems to have changed remarkably little with the crisis – at least in the early stage

Immigrant-native differences in employment can have a non-negligible impact on the budget Estimated budget impact if immigrants had the same employment rate as the native-born, in % of GDP Source: Liebig and Mo (2013).

The overall impact of migration on the budget is, on average, neutral Estimated net fiscal impact of immigrants, with and without the pension system and per-capita allocation of collectively accrued revenue and expenditure items, average Source: Liebig and Mo (2013), « The fiscal impact of immigration in OECD countries », OECD International Migration Outlook (2013) Note: Average 2 includes only countries for which per-capita allocation of collectively-accrued items was available BaselineBaseline excluding pensions Baseline plus per-capita allocation of collectively-accrued items (excluding defence and debt services) Baseline plus per-capita allocation of collectively-accrued items (excluding defence) Australia Austria Belgium Canada Denmark France Germany Greece Ireland Italy Luxembourg Netherlands Norway Spain Sweden Switzerland United Kingdom United States Average Average(2)

Summary of main findings (I) Estimates of the fiscal impact of migration vary substantially, depending on the items included and the time horizon considered...but a few findings can be generalised Low-educated immigrants have a higher net contribution than low-educated native-born...but the reverse is the case for the high-educated Immigrants tend to contribute less to the public purse...but they also often receive less transfers Immigrants have a higher dependency on social assistance...but they receive less often unemployment benefits when unemployed...and thus tend to have less access to active labour market policy measures

Summary of main findings (II) The fiscal position of immigrants varies across OECD countries...but differences in the composition of the migrant population by entry category account for a large part of this Labour migrants have a positive budget impact (at least initially)...but few studies explicitly look at labour migration (exception: Australia) Age at arrival is a critical determinant of the lifetime net fiscal position of immigrant households...but age does not play a major role in many labour migration management systems In most countries, the fiscal impact of migration in terms of GDP – whether positive or negative – tends to be small...but potential gains from improved labour market integration of immigrants – in particular women and high-educated – are nevertheless large

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