National Institutions and the Fiscal Effects of EU Migrants

National Institutions and the Fiscal Effects of EU Migrants

February 26, 2019

Working Paper

Free movement has benefited millions of EU citizens but its consequences have also been the subject of intense public and political debates in many EU countries, especially since the economic crisis in 2008. The fiscal effects of intra-EU have been a central concern in these discussions. A particular focus of debate has been on questions about the consequences of granting EU workers unrestricted access to the host country’s welfare state, such as whether free movement encourages so-called “benefit tourism” – an often-used but ill-defined term – and whether generous welfare states function as “welfare magnets”.

Despite the high salience of the issue in public policy debates in many European countries, research on the fiscal effects of EU migrants, especially comparative analysis across different countries, has been very limited. This working paper builds upon previous research undertaken in REMINDER’s fourth work package to develop an institutional perspective on the fiscal effects of intra-EEA mobility. Specifically, the paper explores whether variations in the fiscal effects of EU migrants are associated with cross-country differences in welfare state and labour market institutions. In public debates on free movement, it is often claimed that different national welfare and labour market institutions across Europe result in considerable cross-country differences in the fiscal effects of EU migrants, e.g. the idea that more “generous” welfare states might lead to lower net-fiscal contributions than less generous welfare states, or that welfare systems that have strong “needs-based” components, might be more costly than systems with stronger contributory elements. The analysis focuses on the fiscal effects in the host countries and do not consider the fiscal effects of emigration in the sending countries.

The key finding is this: the authors do not find any evidence of statistically significant differences in the fiscal impacts of EU migrants across different welfare regimes in the EU15 countries. In other words, there is a lack of evidence to support the common idea that migrants generate a greater fiscal burden in more generous welfare states.

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