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Friday, March 1, 2013

The Fiscal Impact of Immigration in the UK

This briefing explores the conceptual and methodological issues related to estimating the fiscal impact of immigration and provides an overview of the existing estimates for the UK and other countries.

Key Points

  • The net fiscal impact of immigration is typically estimated as the difference between the taxes and other contributions migrants make to public finances and the costs of the public benefits and services they receive. This impact depends on the characteristics of migrants, their impacts on the labour market and the characteristics and rules of the welfare system, among other factors.
  • In theory, migrants who are young, skilled and doing highly-paid jobs are likely to make a more positive net fiscal contribution than those with low skills and low labour market participation rates.
  • For the UK (and most other countries), the majority of studies conclude that the overall net fiscal impact of immigration is positive but small. However, results are subject to key assumptions such as the allocation of dependent UK-born children of mixed parents (i.e. a UK-born and foreign-born parent) to the UK-born or migrant group and to the sectors that are taken into consideration.
  • The evidence suggests that in the four fiscal years following EU enlargement in 2004, migrants from the A8 countries made a positive contribution to public finance in the UK. While A8 migrants work mostly in lower wage occupations, they tend to have high labour force participation rates and employment rates.
  • Immigration may, in the short term, help decrease the dependency ratio – the ratio of those not in the labour force (the dependent group) and those in the labour force. However, this effect is likely to diminish over time as migrants who stay in the UK will become older and retire.

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