ABSTRACT OFFERED FOR 1993 PAA MEETINGS Julian L. Simon and Athur Akbari WELFARE STATE EFFECTS OF IMMIGRATION INTO EUROPE THROUGH TRANSFER AND TAXES A common argument against immigration is that even if immigration was economically beneficial in earlier times, it is no longer so because of the existence of government programs of redistribution. Immigrants supposedly exploit the welfare systems at the expense of natives. When I analyzed data for the United States, the results contradicted this belief. For many years after arrival, the average immigrant family pays more taxes, and receives less government benefits, than does the average native family. A study for Canada as of 1981 by Akbari arrives at almost identical results. Conditions are somewhat different in Europe because many countries give expensive family benefits not provided in North America. For example, Germany and some other countries give parents $50 or more monthly for the first child, and most West European countries give somewhere around $100 monthly for the second and subsequent children. In various countries, too, there are grants for maternity leaves and also income tax rebates connected with children, plus public health care programs payments, none of which are found in the United States. One frequently hears anecdotes about a family from Turkey or East Germany that arrived with half a dozen kids and pro- ceeded to batten off the public coffers, comparable to anecdotes that were long heard in the U. S. about Cubans and Filipinos and others. But some rough arithmetic shows that the European family programs almost surely do not reverse the positive tax-and-transfers balance in North America. There is on average less than one child of dependent age in immigrant families at any time after arrival in the U. S., and Eastern European families are considerably smaller. So even if European-style benefits were given in North America, they would not absorb even half the surplus of the net contribution immigrants make to the public coffers. Furthermore, the overall level of taxes paid in Europe -- 40 percent of total income in Italy and the UK, 44 percent in Germany, 47 percent in France, and as high as 59 percent in Denmark -- is much higher than the 31.5 percent of income paid in the U. S. Hence immigrants pay more in taxes in Europe than in the U. S. Here is a rough analysis on the assumptions that income in Europe is 80 percent of what it is in the U. S., and that immigrants finance only half as much defense burden and other "public goods" in Europe as in the U. S. The costs of all government services for average immigrant and native families are approximately 50 percent higher in Europe than if U. S. bene- fit practices were followed. And taxes paid by immigrants are some 40 percent higher in Europe. The resulting calculations suggest that immigrants from Eastern to Western Europe probably would make a net contribution to the public coffers at least 75 percent as large as do immigrants to the U. S., as a proportion of income. In other words, the immigrants are likely to transfer to na- tives at least 7.5 percent of their income each year. And they might well contribute even more to the public coffers in Europe than in North America. Whichever is the case, net contribution is quite the opposite of the net burden on the public fisc that is commonly thought. This paper will report recent and ongoing research on the subject for Europe, including the following: 1. Preliminary (and very tentative) results of a study of a Swiss governmental labor-market survey by Georgio Dhima and me shows that the tax contributions of each cohort of immigrant families (except the oldest) are much larger than are the transfer payments (and will be even larger when we allow for indirect taxes, which should not change the observed pattern very much). But this is not surprising, because that is also true for native Swiss families - inevitably so, because government makes expenditures other than transfer payments. A more powerful finding is that the excess of taxes over transfers is greater for each of the immigrant-family cohorts than for the native fami- lies (except the oldest immigrant cohort, who are least important due to discounting and the support of their own children, and except for the 1984- 1986 cohort that seems to be so different than its neighboring cohorts in having a large number of pensioners that we must investigate further). 2. Ulrich and Steinmann (1992) have derived from a German government socio-economic survey results that show a much greater positive difference between taxes and transfers for all immigrant cohorts than for native families. This magnitude is more than double that of natives for all immigrants taken together, and the excess is more than two-thirds of the total tax payments - a large contribution to the public coffers by any standard of comparison. And the difference is even larger for the most recent cohort, which is the most weighty one from the point of view of a present-value calculation, though the absence of an entry (as yet) for school expenditures would be likely to reduce the difference for the newest cohort more than the others and more than natives. 3. Gustafsson (19**) reviewed several Swedish studies published in Swedish. All found that taxes paid were larger than transfers received (except for older immigrants, which is as expected). But again, this is not very impressive because the same is true for natives, and the transfers are inevitably smaller than taxes because of items omitted from the calcu- lation. Gustafsson also analyzed Swedish data which are not broken by cohort, so it is not even possible to separate the older and retired immigrants from the others as is crucial for any sensible longitudinal assessment. The overall results are quite similar for natives and immigrants. The native group has a much larger proportion of retirees, while the immigrant group has a larger proportion of families with children. And the fact that the balance is more positive than for natives despite this bias is confir- matory though weak evidence for the general impression given by all these data. The lumping together of all immigrant cohorts probably biases the results against immigrants, but the fact that almost all of the immigrants in the survey are not aged suggests that the bias may not be great. page 1/article2 immabeur/October 13, 1992 Simon, Julian L., The Economic Consequences of Immigration (Oxford: Basil Blackwell Ltd, 1989). Akbari, Ather H., "The Benefits of Immigrants to Canada: Evidence on Tax and Public Services", Canadian Public Policy, December, 1989, pp. 424-435. page 2/article2 immabeur/October 13, 1992