Do Generous Welfare Systems Make Immigration More Expensive?

Migration between European countries does not lead to higher costs for countries that have more generous welfare systems than those with more restrictive systems, new analysis has shown.

The findings come from a team of academics based at Uppsala University in Sweden and the European University Institute at Florence in Italy, and are part of the REMINDER project – a large pan-European analysis of the impacts of migration in Europe based at the University of Oxford in the UK.

The team of economists and political scientists explored whether the idea that more “generous” welfare states might lead to lower net-fiscal contributions than less generous welfare states, or that welfare systems that have strong “needs-based” components might be more costly than systems with stronger contributory elements.

The working paper distinguishes and analyses how the fiscal effects of EU migrants vary across five different institutional regimes covering 29 countries that are part of the European Economic Area (EEA):

  • The “basic security regime” seen in Ireland, Malta, and the UK
  • The “Continental corporatist regime” seen in Austria, Belgium, France, Germany, The Netherlands, and Switzerland
  • The “Mediterranean corporatist regime” seen in Cyprus, Greece, Spain, Italy, and Portugal
  • The “State insurance regime” common in more recent EU accession states such as Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia, and Slovakia
  • The “Universal regime” seen in Denmark, Finland, Iceland, Norway, and Sweden

The team looked at how the net fiscal impact of an average EU migrant household differs across these institutional regimes. They looked at public revenues from taxes, social security contributions and other sources, as well as public expenditures for welfare benefits, public services and other spending. The biggest difference in the net fiscal impacts of EU migrants was between the “State insurance regime” in East European countries and the other four regimes in the EU15. The fiscal contribution of EU migrants in the State insurance regime is significantly lower than in the other regimes, but the number of EU migrants in the countries belonging to the State insurance regime is so small that the effect of EU migration on the public budget is limited.

The researchers also found that the net fiscal impact of EU migrants is clearly positive in all four of the regimes in the EU15. Furthermore, the per-household fiscal contribution of EU migrants clearly surpasses the contribution of the average native household in these regimes. Dr Marcus Österman, the lead author of the report said: “Our key result is that we do not find any evidence of statistically significant differences in the fiscal impacts of EU migrants across the regimes in the EU15 countries, despite the fact that some of these regimes are often depicted as diametrically opposed in terms of how “generous” they are perceived to be.

 “We do not find any evidence in support of the common idea that migrants generate a greater fiscal burden in more generous welfare states. While expenditure per EU migrant household is higher in the Universal regime than in the other regimes, this is more than compensated by higher revenues from these households.”

(Source: University of Oxford)

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