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Immigration and local spending in social services: evidence from a massive immigration wave

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Abstract

The aim of this paper is to analyze the relationship between immigration and redistributive public spending by using the recent, massive arrival of immigrants in Spain. Specifically, we focus our analysis on the effect of 1998–2006 changes in local immigrant density on contemporaneous changes in municipal spending in social services. To address the potential endogenous location of immigrants, we adopt an instrumental variables approach that uses the distribution of rental housing in 1991 to predict the location of immigrant inflows. The results indicate that (per capita) social spending increased less in those municipalities that recorded the largest increases in immigrant density. We interpret our results as a reduction in natives’ demand for redistributive public spending.

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Notes

  1. See Kerr and Kerr (2011), Chiswick et al. (2014) and Lewis and Peri (2015) for recent reviews on the economic effects of immigration on host countries.

  2. During the period 1998–2006, among the developed countries, Spain was the second highest recipient of immigrants in absolute terms (behind the US) and the highest relative to its population level (OECD-International Migration Database).

  3. In his study of the effect of immigration on vote outcomes, Harmon (2014) uses long-lagged measures of rental housing availability to predict subsequent immigrant density changes.

  4. A third channel by which immigration could affect spending in social services is by changing local income and (per capita) tax revenues. This channel is not present in our model given the quasi-linear utility function adopted. In our application, this assumption turns out to be not too unrealistic as our findings indicate that immigration does not affect per capita tax revenues. This is probably explained by the fact that local tax bases in Spain are not too sensitive to changes in local income. We return to this issue below.

  5. After some algebra, one can show that \(\frac{dg}{d\beta }=\frac{1}{\left( {1-\beta } \right) ^{2}}\cdot p^{\frac{\beta }{\beta -1}}\cdot \beta ^{\frac{1}{1-\beta }}\left[ {\frac{1-\beta }{\beta }+\ln (\beta )-\ln (p)} \right] >0\). Note that the term \((1-\beta )/\beta +\ln (\beta )\) goes from infinity to zero as \(\beta \) goes from zero to one, which guarantees that the previous derivative is positive. Following the same reasoning, one can show that \({da}/{d\beta }>0.\)

  6. These coexist with Diputaciones, Comarcas, Consejos Insulares and Cabildos. See Solé-Ollé and Sorribas-Navarro (2008) for more information on these upper tiers of local government, which play an important role in financing municipal investment through capital grants.

  7. Municipal elections were held in June 1999, May 2003 and May 2007 throughout all Spanish municipalities. Voters choose between several closed party lists. The electoral system is a proportional one, with seats being allocated using the d’Hondt rule with a threshold. The mayor is elected by a majority of the council, which operates as a small representative democracy. We do not use 2010 to avoid the Great Recession as local governments’ budgets were severely hit.

  8. These percentages are also based on 2006 population and municipality figures that exclude the Basque Country and Navarre.

  9. However, only Spanish citizens can vote in regional and national elections.

  10. See Bosch and Solé-Ollé (2007) for a more complete description.

  11. Social services spending corresponds to the expenditure items contained in chapter 3 of the Classificación Funcional del Gasto. The other items correspond to the following chapters: General spending—chapter 1; Police and fire protection—chapter 2; Health—4.1; Education—4.2; Housing, street lighting and cleaning—4.3; Water supply and waste treatment—4.4; Culture and sports—4.5; while Local roads and economic development is the sum of chapters 5, 6 and 7.

  12. These programs do not include unemployment insurance, which is the responsibility of central government.

  13. Some (small) municipalities do not provide all of these services directly but rather buy them from upper tiers of government. Our spending measure includes the costs of these indirect forms of provision.

  14. The Local Government Act assigns different responsibilities to municipalities of different sizes (see Solé-Ollé and Bosch-Roca 2005, for a more complete description). The Act establishes that municipalities with less than 20,000 inhabitants are not obliged to provide social services. Despite this, many municipalities below this population threshold do provide these services (Mas and Vilalta 2006). In the econometric analyses, we include dummies that account for these legal differences in spending responsibilities.

  15. Among immigrants entering Spain between 1998 and 2006, the proportion of asylum seekers was 3 % (OECD-International Migration Database).

  16. There are several reasons to exclude EU15 immigrants. EU15 foreigners might be perceived by natives as ethnically closer than non-EU15 foreigners and are less likely to be social services’ users than non-EU15 foreigners. On a more practical note, the availability of rentals in 1991 does not explain the location of EU15 immigrants in the 1998–2006 period as these immigrants are much less dependent on rental housing than non-EU15 immigrants. Since the 2SLS coefficients estimate the effects of interest for the population of compliers, we are unable to estimate the effect of EU15 immigrants on social services spending.

  17. The fractionalization index is defined as \(1-\sum s_{ct}^2 \), where \(s_{ct} \)is the share of population in year t from country c. For further details, see Alesina and Ferrara (2005).

  18. According to the 2011 Census, while 64 (31) percent of natives have, at least, secondary (tertiary) education, this percentage is 55(20) for non-EU immigrants.

  19. Immigrants defined as individuals with a non-EU27 nationality. The probability that an individual is a social services’ user is 6.6 for EU27 citizens and 9.2 % for non-EU27 citizens.

  20. Note that fiscal capacity and expenditure needs might, in turn, be affected by immigration and, thus, be endogenous. Nevertheless, excluding these controls might also confound the effect of immigration on spending in social services. Reassuringly, the results will be robust to the inclusion of these controls.

  21. Recent examples of papers using Altonji and Card (1991) type of instruments include Saiz (2007), Cortes (2008), Card (2009), Peri (2012) and González and Ortega (2011, 2013).

  22. In Sect. 4.5, we also report 2SLS results based on the Altonji and Card (1991) strategy.

  23. For more recent evidence on the welfare magnets hypothesis, see McKinnish (2005, 2007) and Fiva (2009).

  24. In practice, the welfare magnets hypothesis is only one reason to expect differences between OLS and 2SLS estimates. Measurement error in immigrant density could also bias the OLS estimates toward zero. In fact, there is some evidence of measurement error in immigrants’ counts, especially in the 1998–2001 period (Fernández-Huertas Moraga et al. 2015). Finally, note that OLS and 2SLS might diverge as 2SLS estimate the effect of interest for ‘compliers.’ In our application, it would be the effect of changes in immigrant density caused by the availability of rental housing in 1991.

  25. See Amudeo-Dorantes and De la Rica (2010) for some evidence that, between 1999 and 2007, immigrants in Spain sought regions with higher employment rates.

  26. Note that, a priory, there is no reason why this correlation should be zero. Empirically, however, the correlation between social services spending in 1998 and subsequent (1998–2002 and 2002–2006) increases in immigrant density is virtually zero (0.002).

  27. According to Dirección General del Catastro, between 1998 and 2006, 77 % of municipalities did not reassess the property tax base.

  28. For instance, it completely vanishes if we include regional dummies.

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Acknowledgments

We wish to thank the Editor, two anonymous referees, Pere Arqué-Castells, George Borjas, Per-Anders Edin, Joan Llull, Leah Platt-Boustan, Joshua Gottlieb, Assaf Razin and Jorge de la Roca for useful comments and suggestions. We acknowledge financial support from the Instituto de Estudios Fiscales. We are also grateful to the Ministerio de Economía y Competitividad —ECO2013-41310 (Jofre-Monseny and Vázquez-Grenno) and ECO2015-68311-R (Sorribas-Navarro), and Generalitat de Catalunya—2014SGR420 (Jofre-Monseny, Sorribas-Navarro and Vázquez-Grenno).

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  1. Departament d’Economia, Institut d’Economia de Barcelona (IEB), Universitat de Barcelona, Avda. Diagonal 690, Torre 6, Planta 2, 08034, Barcelona, Spain

    Jordi Jofre-Monseny, Pilar Sorribas-Navarro & Javier Vázquez-Grenno

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  1. Jordi Jofre-Monseny
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  2. Pilar Sorribas-Navarro
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  3. Javier Vázquez-Grenno
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Correspondence to Pilar Sorribas-Navarro.

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Table 8 First-stage results
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Jofre-Monseny, J., Sorribas-Navarro, P. & Vázquez-Grenno, J. Immigration and local spending in social services: evidence from a massive immigration wave. Int Tax Public Finance 23, 1004–1029 (2016). https://doi.org/10.1007/s10797-016-9399-y

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