Thread by @NPestel83

🆕Immigrant Voters, Taxation and the Size of the Welfare State 🆕

Our new paper on the effect of #immigration on #redistribution is now out as @iza_bonn Discussion Paper! @ben_elsner @EconomicsUCD @RHULECON

🧵Summary thread here 👇🏼
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💻Paper: iza.org/publications/d…
📰 @iza_bonn Newsroom: newsroom.iza.org/en/archive/res…
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Research question: How does immigration (of poor people) affect public policies? Immigration may reduce taxes and spending if it lowers native voters’ support for redistribution. This is so because immigrants typically don’t have voting rights.
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Contribution: We show that immigration leads to more redistribution (selective tax raises, higher welfare spending, long-run impact on preferences for redistribution) in a setting where immigrants DO have voting rights.
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Setting: After #WWII, borders in Europe were redrawn. Germany had to cede 25% of its territory. This led to the displacement of 12 million Germans, of which 8 million settled in West Germany.
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Huge migration shock: West German population increased by 20%. As German citizens, migrants had voting rights & were eligible for social welfare upon arrival. However, after losing virtually all assets during expulsions, they were considerably poorer than the West Germans.
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Identification: Exploit substantial regional variation in size of the migrant inflow. Population shares range from <2% to >40% among West German counties. Location of migrants not random but diff-in-diff shows common pre-trends. We also apply #IV methods.
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Main result I: Local governments responded to migration shock with selective raises in local taxes + shifts in spending. Farmland + business taxes ⬆️, property + wage bill taxes ➡️. Changes were persistent until the mid-1960s.
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Main result II: Local governments shifted spending; welfare spending ⬆️; spending on infrastructure/housing ⬇️; positive but insignificant effect on local debt.
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Mechanisms: Policy changes partly driven by political influence of immigrants: major parties (CDU/CSU/SPD) more likely to nominate immigrant candidates + higher vote shares for pro-immigrant party (GB/BHE) in high-inflow regions.
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Long-run effects: Mass immigration had lasting effects on preferences for redistribution: in high-inflow areas, people born after the inflow have substantially higher demand for redistribution more than 50 years later.
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Conclusions: Public policy response to immigration depends on immigrant voting rights. This is relevant for internal migration, in which case migrants have voting rights. Also relevant for the discussion about extending the franchise to migrants.
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