The Fiscal Effect of Immigration: Reducing Bias in Influential Estimates

Michael Clemens

No 2134, CReAM Discussion Paper Series from Centre for Research and Analysis of Migration (CReAM), Department of Economics, University College London

Abstract: Immigration policy can have important net fiscal effects that vary by immigrants’ skill level. But mainstream methods to estimate these effects are problematic. Methods based on cash-flow accounting offer precision at the cost of bias; methods based on general equilibrium modelling address bias with limited precision and transparency. A simple adjustment greatly reduces bias in the most influential and precise estimates: conservatively accounting for capital taxes paid by the employers of immigrant labor. The adjustment is required by firms’ profit-maximizing behavior, unconnected to general equilibrium effects. Adjusted estimates of the positive net fiscal impact of average recent U.S. immigrants rise by a factor of 3.2, with a much shallower education gradient. They are positive even for an average recent immigrant with less than high school education, whose presence causes a present-value subsidy of at least $128,000 to all other taxpayers collectively.

JEL-codes: F22 H68 J61 (search for similar items in EconPapers)
Date: 2021-12
New Economics Papers: this item is included in nep-int, nep-lab, nep-mig and nep-ure
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Related works:
Working Paper: The Fiscal Effect of Immigration: Reducing Bias in Influential Estimates (2023)
Working Paper: The Fiscal Effect of Immigration: Reducing Bias in Influential Estimates (2022)
Working Paper: The Fiscal Effect of Immigration: Reducing Bias in Influential Estimates (2021)
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