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Immigration and the pattern of public spending: evidence from OECD countries

Dowon Kim () and Dongwon Lee ()
Additional contact information
Dowon Kim: Migration Research & Training Centre
Dongwon Lee: Sungkyunkwan University

International Tax and Public Finance, 2021, vol. 28, issue 4, No 9, 1014-1034

Abstract: Abstract Using a panel of OECD countries, we show that immigration systematically alters the composition of public spending in the destination country. To mitigate bias from the endogenous sorting of immigrants, we use an IV estimation strategy. The instrument is constructed by estimating a bilateral migration model for 24 destination and 208 source countries. We find that the host country responds to the increase in immigrants by adjusting various expenditures, such as by reallocating resources from social welfare to national defense and public order. Our findings imply that (1) immigration affects policy outcomes in areas with a low ethnic or redistributive dimension and (2) immigration may have an insubstantial effect on the total size of government.

Keywords: International migration; Government expenditures; Substitution effect; Bilateral migration model (search for similar items in EconPapers)
JEL-codes: D72 F22 H50 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s10797-020-09638-x

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