Abstract
Will future immigration to a country with a large public sector alleviate the increasing burden on the public welfare system due to an ageing population? The question is based on the experience that the age structure of immigrants differs from that of the native population. Fiscal impacts due to immigration depend mainly on the size, the age composition and the labour market integration of the additional population which arises because of immigration. A projection from Statistics Sweden about future immigration combined with the latest Long-Term Survey of the Swedish Economy has been used in this study. Calculations for Sweden up to the year 2050 show that the positive net contribution to the public sector from the additional population is rather small even with good integration into the labour market. The reason is that future immigration will increase the size of the population and thereby raise not only revenue from taxation but also public expenses. The fiscal impact is sensitive to the labour market integration of the additional population. The yearly positive/negative net contribution effect is less than 1% of GDP for most of the years. On the whole, the results are about the same even if we change the assumptions concerning the composition of future public revenues, the growth of public expenses, return migration, or the age-specific birth and death rates in the additional population. More considerable net fiscal effects would require a much higher and probably unrealistic level of future immigration.
Résumé
L’immigration future dans un pays disposant d’un vaste secteur public soulagera-t-elle le poids que le vieillissement démographique fait peser sur le système public de sécurité sociale ? La question se base sur le fait que la structure par âge des immigrants diffère de celle de la population autochtone. L’impact fiscal de l’immigration dépend principalement de l’importance numérique, de la structure par âge et de l’intégration dans le marché du travail de la population additionnelle qui survient du fait de l’immigration. Une projection relative à l’immigration future réalisée par Statistiques Suède combinée aux données de la dernière enquête de longue durée sur l’économie suédoise a été utilisée pour cette étude. Les projections jusqu’en 2050 montrent que la contribution positive nette de la population additionnelle au secteur public est plutôt faible même dans le cas d’une bonne intégration dans le marché du travail. Ceci est dû au fait que l’immigration future augmentera l’effectif de la population, accroissant ainsi les revenus issus des taxes mais aussi les dépenses publiques. L’impact fiscal est sensible au degré d’intégration de la population additionnelle dans le marché du travail. La contribution annuelle nette positive/négative est inférieure à 1% du PIB pour la plupart des années considérées. Dans l’ensemble, les résultats restent semblables quelles que soient les hypothèses relatives à la composition des recettes publiques futures, à la croissance des dépenses publiques, aux migrations de retour et aux taux de natalité et de mortalité par âge de la population additionnelle. Des effets fiscaux plus élevés nécessiteraient des niveaux d’immigration future beaucoup plus élevés et sans doute irréalistes.
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Notes
In reality, Statistics Sweden (2006) made two forecasts of future immigration. There is one basic alternative and one alternative with higher immigration. The basic alternative corresponds to a yearly net immigration (difference between immigration and outmigration) of 12,000–15,000 individuals. It is not realistic to use a basic alternative with no net immigration at all because this alternative also includes native-born Swedes who return home. In the high immigration alternative, the yearly net immigration is about 35,000 individuals. By future immigration we mean the difference between the high immigration alternative and the basic alternative. The additional population is a projection of this difference considering age-specific fertility rates, age-specific death rates and return migration. The original population is a projection of the rest (the majority) of the population. Thus the original population also includes the immigrants already living in Sweden 2006.
There are also public investments but they amounted to only about 5% of public expenses in 2006. Besides, a large share of public investment is not financed by taxes but by loans. Therefore, we limit public expenses to public transfer payments and public consumption expenditures.
For example the proportions will be 34.3, 7.9, 32.4 and 25.4% in 2020; 34.4, 7.6, 32.7 and 25.3% in 2030; 34.4, 7.4, 32.7 and 25.5% in 2040; 34.3, 7.6, 32.2 and 25.8% in 2050. For 2015 we have used the average of the proportions in 2006 and 2020. For 2025 the average of the proportions in 2020 and in 2030 has been used. For 2035 the average of the proportions in 2030 and in 2040 has been used.
The age-specific employment rates can differ between different immigrant groups. We assume that, on average, the age-specific employment rates are the same in the additional population as in the original population. In the 1950s, 1960s and 1970s, when the labour market situation was good for immigrants in Sweden, the age-specific employment rates were practically the same for different immigrant groups and for refugees.
We assume that the capital intensity (capital per unit labour) is the same as in case 1. This means that for a Cobb-Douglas production function with constant return to scale the GDP decreases in proportion to the decreases in the total number of employed in the economy. The effect on GDP will be rather small because the number employed in the additional population is a small part of the number employed in the total population.
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Acknowledgments
I am grateful to the Expert Group on Public Finance (ESO) at the Ministry of Finance, Sweden, for financial support of this study. I am also grateful for useful comments and suggestions from two anonymous referees and from the editor, from ESO’s reference group, from Ali Ahmed and Lennart Delander Linnaeus University Växjö, and from Christer Gerdes Stockholm University and Martin Ådahl Fores. Besides I am grateful to Annika Klintefelt, Petter Lundborg, Hans Lundström and Petter Wikström at Statistics Sweden for excellent data.
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Ekberg, J. Will Future Immigration to Sweden Make it Easier to Finance the Welfare System?. Eur J Population 27, 103–124 (2011). https://doi.org/10.1007/s10680-010-9227-5
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DOI: https://doi.org/10.1007/s10680-010-9227-5