It Ain't about the Money: A Cross-Country Study on Fiscal Implications of Immigrant Exclusion

In recent decades, immigration has become a major source of population growth in many rich countries. Across countries, immigrants encounter a diverse set of social policies. Some host countries have programs that are inclusive of immigrants (e.g., Canada, Norway, Sweden), while others have policies that explicitly exclude immigrants or certain groups of immigrants from a range of social programs (e.g., the U.K., the U.S., Switzerland). One widely held argument in favor of less inclusive policies towards immigrants is that exclusionary policies reduce the fiscal burden of immigration. Yet, there is not much research that has empirically investigated this argument. Yet, there is not much research that has empirically investigated this argument.

Using data from several sources, including the OECD Social Expenditures Database (SOCX), we study the fiscal consequences of immigrant exclusion policies using cross-national data for 21 OECD countries covering 25 years, from 1990 to 2015. We study six primary outcome variables: aggregate social expenditure expressed as a proportion of GDP and five subdomains of social expenditures, namely: expenditures on pension, family benefit, unemployment, disability, and healthcare.

Results from our multivariate analyses suggest that immigrant exclusion from welfare programs has a modest and mostly statistically insignificant impact on aggregate government social spending. Our statistically insignificant estimates show that a 10 point increase in the exclusion index lowered social expenditure as a proportion of GDP by 0.22 to 1.05 percentage point (or 1 to 4.7%). We also find that increasing the exclusion index in social assistance by 10 points lowers family benefit expenditure by 0.06 to 0.1 percentage points (2.6 to 4.3% of the mean family expenditure). Further, we find that while social assistance exclusion lowers the combined expenditure on family benefits and disability, exclusion from housing benefits increased these expenditures. Importantly, we find inclusion in health care lowered healthcare expenditure, but the effect turns modest and insignificant in models where the policy variable is lagged. These results suggest that immigrant exclusion from certain programs (such as health care) could be detrimental to the exchequer as well as immigrant health.