Welfare state/fiscal burden objection

The welfare state/fiscal burden objection is a loose term for a collection of critiques of open borders and/or liberalized immigration regimes that considers how migration policy interacts with the fiscal health as well as the structure of the state’s tax and welfare regime of the immigrant-receiving countries. Explicitly, it seeks to relate fiscal policy, migration policy, fiscal outcomes, and migration outcomes.

  • Fiscal policy: This includes policies related to taxation (government revenue collection) and government spending. Government spending includes spending on social safety nets, health care, education, public goods, and many other items.
  • Migration policy: This includes all policies related to dictating the conditions under which people can migrate to the country, including controls on both quantity and selectivity.
  • Fiscal outcomes: This describes how the government is performing fiscally: is it running a surplus or a deficit? How large is the government debt?
  • Migration outcomes: What type of migration to the country is seen in practice? How are the migrants performing, and what effects are they having on the natives?

This page focuses on the relationship between fiscal aspects and immigration. A similar model can be applied to emigration. In fact, existing discussions of the (alleged) problems of emigration, such as brain drain, are partly based on fiscal considerations, but these considerations are not dominant. The reason for the focus on immigration here is that the right to emigrate is more widely recognized in practice than the right to immigrate, and governments may not perceive themselves as having that much discretionary control over emigration policy.

We now consider the various directions of causation:

The within-fiscal and within-migration directions of causation are:

  • Fiscal policy affecting fiscal outcomes
  • Fiscal outcomes affecting fiscal policy
  • Migration policy affecting migration outcomes: Migration policy does significantly affect migration flows both in quantity and type (see here and here for more).
  • Migration outcomes affecting migration policy

There are also eight possible crossed directions of causation:

  • Fiscal policy affecting migration policy
  • Fiscal policy affecting migration outcomes
  • Fiscal outcomes affecting migration policy
  • Fiscal outcomes affecting migration outcomes
  • Migration policy affecting fiscal policy
  • Migration policy affect fiscal outcomes
  • Migration outcomes affecting fiscal policy
  • Migration outcomes affecting fiscal outcomes

We can also have chains of causation, one thing affects the other, which affects a third, and so on. or instance, migration policy may affect fiscal outcomes, which in turn may force a revision of fiscal policy. We could also have cycles of causation. A cycle of causation is a chain of causation that loops back to where it started.

The welfare state/fiscal burden objections have a number of different but related aspects:

  • Welfare magnet hypothesis: This is a hypothesis about the effect that fiscal policy has on migration outcomes, particularly on the quantity and selectivity of migration flows (in terms of future expected income, which can be proxied by skill level). The claim is that more generous welfare states attract more migrants, and they attract migrants who are disproportionately likely to be eligible for or in need of the provisions. In practice, since welfare benefits are means-tested, and even otherwise, are more attractive to people with low incomes, this means that generous welfare provisions are likely to attract migrants who have low future expected income, usually described as “low-skilled” migrants.
  • Fiscal burden hypothesis: This is a hypothesis about the effect that migration outcomes have on fiscal outcomes. Since migration policy affects migration outcomes quite directly and significantly, it may also be considered a hypothesis about the effect of migration policy on fiscal outcomes. The claim is that certain types of migration flows (and therefore, the migration policies that facilitate these flows, to the extent that such flows can be controlled or influenced via policy) create net fiscal burdens on the immigrant-receiving societies, thereby harming the fiscal health of these societies.
  • Contraction of welfare state: This is a concern voiced by some people, particularly supporters of a more generous welfare state than the status quo. The concern is about the effect that migration policy has on fiscal outcomes and therefore on fiscal policy, or, more specifically, the way that greater migration constrains the feasible range of fiscal policies. Certain generous welfare policies are feasible only if the proportion of people who will end up using the benefits is sufficiently small, and migration, by allowing many poor people in, could potentially enlarge the pool of people, rendering the policies infeasible. The phenomenon may operate through hard constraints (there is literally no money to fund the provisions) and soft constraints (voters decide that the benefits aren’t worth the price tag). Another potential channel for the contraction of welfare state is that natives view migrants as an outgroup and are unwilling to fund generous welfare provisions that disproportionately help the outgroup. This could be viewed as a form of nativist backlash.
  • Expansion of welfare state: This is a concern generally voiced by people who want less generous welfare states relative to the status quo. The concern is that migration flows that are not selected based on skills or future expected income would enlarge the welfare state in either of two ways. First, it would enlarge the size of the welfare state relative to the whole economy because a larger share of the population would be eligible for welfare benefit. This channel assumes fiscal policy to be constant. Second, the political externalities channel might lead to more generous welfare provisions.

Note that the expansion and contraction of the welfare state are opposing influences, and while there are groups of people who view one or the other as a problem, it would be somewhat inconsistent to view both as problems. Some people might believe in one of these and view it as a plus for migration. For instance, libertarians who believe in the “contraction of welfare state” theory might embrace this as one of the positives of migration. Similarly, some of the people with extremely strong ideological commitments to an expanded welfare state might view the political externalities channel leading to more generous welfare provisions as a positive feature of migration.

"The Efficient, Egalitarian, Libertarian, Utilitarian Way to Double World GDP" — Bryan Caplan