International migration and the welfare state revisited

Immigration is a controversial topic in most developed economies. The presence of a redistributive welfare state in all major immigrant host countries creates a margin on which immigration affects native welfare. The primary focus of the paper is whether a large intake of immigrants reduces welfare state effort. It is usually argued that steady increases in immigration lead to public pressure for lower levels of publicly-funded social expenditures. In contrastz to the earlier empirical literature on this topic, we find little evidence in favour of this hypothesis. While immigration does have a relatively modest effect on the welfare state, if anything there is some support for the view that a greater influx of immigrants has lead policy-makers to increase welfare state spending.

► We discuss the welfare economics and political economy of immigration. ► We estimate the effects of immigration on social expenditures. ► We use GMM estimation for a panel of OECD countries. ► We find that immigration has a relatively modest effect on the welfare state. ► If anything, an influx of immigrants leads to higher welfare state spending.