Abstract
In this paper we examine how Finnish municipalities’ expenditures depend on the demographic structure of the population. More precisely, we scrutinize the role of foreign citizens: how does the share of citizens with foreign background out of the total population manifest itself in total expenditures and some key expenditure categories. The study makes use of Finnish panel data from 249 municipalities for the period 2000–2014. Empirical analyses show that foreign population tends to increase per capita expenditures up to the point where the respective semi-elasticity is about one. The result seems robust in terms of different control variables, subsamples of the data and different estimation techniques. Also, it is found that the unemployment rate of foreign citizens tends to increase municipalities’ expenditures. Thus, opposite to standard assumptions, per capita public consumption expenditures do depend on migration and that should be taken into account when making assessments on overall fiscal effects of migration. From political economy point of view, these results seem to be at variance with the “non-willingness to pay other ethnic groups’ expenditures” hypothesis that has been put forward by e. g. Alberto Alesina and Assaf Razin.
Acknowledgements
Erik Mäkelä is a post doc researcher and Matti Viren a professor at the University of Turku and a scientific advisor at the Bank of Finland (the usual disclaimer applies). Useful comments from an anonymous referee and Tina Parhila’s research assistance are gratefully acknowledged.
Data Appendix
The data come from 295 municipalities form Finland and cover the period 2000–2014. The data correspond to the municipalities that existed in 2013. Municipality fusions that took place prior 2013 have been taken into account by computing population weighted averages of municipalities which were independent prior to 2013. Altogether the data include 3735 observations but some of those are lost because of differences and lags. All income and expenditure variables have been deflated by either P or W and expressed in per capita terms. See the tables for details. The main data source is Statistics Finland. The main variables are:
| FB | foreign background population=people of foreign background include foreign citizens, people speaking foreign languages (and not Finnish or Swedish), foreign born Finnish citizens and their children |
| POP | total municipality population |
| DENS | population density (population/municipality area in square kilometers) |
| OLD | share of old (>65 years) people of total municipality population |
| YOUNG | share of young (<15 years) people of total municipality population |
| Y | income of households; Y is obtained by dividing per capita tax revenues by the tax rate. In Finland, the municipality tax is flat rate tax although there is a basic deduction |
| TC | total operating costs; all costs are so-called net costs; that is, costs of producing services net of services sold and bought to/from other municipalities |
| EDU | total (net) education costs |
| SOS | total (net) costs for health and social services |
| UN | the unemployment rate in the municipality |
| UF | unemployment rate of foreign citizens in the municipality |
| Left | share of municipality council seats of the following parties: Social democrats, the Greens and the Left party |
| FX | dummy for an arrival for first foreigners to the municipality |
| STAFF | total municipality personnel/POP |
| REV | total tax revenues of the municipality |
| TAX | the municipality tax rate |
| P | price index of municipalities’ production |
| W | wage index of municipalities’ employees |
Descriptive statistics for 2014
| Mean | Median | Maximum | Minimum | Std Dev | |
|---|---|---|---|---|---|
| TC | 5875 | 5809 | 9229 | 4352 | 767 |
| Dens | 63,17 | 10,49 | 3364,31 | 0,17 | 256,68 |
| EDU | 1405 | 1383 | 2199 | 961 | 198 |
| FB | 1,96 | 1.50 | 9,60 | 0,30 | 1,615 |
| Old | 23.39 | 24.30 | 40,30 | 8.70 | 5.74 |
| Young | 16.23 | 16,00 | 32,20 | 2,10 | 6.55 |
| POP | 16,948 | 5816 | 620,715 | 761 | 49,406 |
| Left | 0,25 | 0,24 | 0,60 | 0,00 | 0,12 |
| SOS | 3928 | 3869 | 6081 | 2710 | 575 |
| UN | 14.09 | 14.10 | 26.20 | 3.50 | 3.97 |
| STAFF | 0,06 | 0,06 | 0,13 | 0,00 | 0,02 |
| REV | 3368 | 3288 | 6374 | 2323 | 528 |
| TAX | 20,47 | 20,50 | 22,25 | 18,00 | 0,81 |
All values, except for ratios, are (unweighted) per capita values
Some descriptive statistics of migrants in Finland by major countries
| Age categories | All | 0–17 | 18–64 | 65- | |
|---|---|---|---|---|---|
| All nationalities | All | 5,487,308 | 1,073,060 | 3,291,145 | 1,123,103 |
| Wage earners | 2,022,548 | 0 | 1,999,520 | 23,028 | |
| Entrepreneurs | 233,911 | 0 | 231,731 | 2180 | |
| Not in the labor force | 3,230,849 | 1,073,060 | 1,059,894 | 1,097,895 | |
| Finland | All | 5,257,543 | 1,032,883 | 3,111,700 | 1,112,960 |
| Wage earners | 1,946,167 | 0 | 1,923,558 | 22,609 | |
| Entrepreneurs | 225,424 | 0 | 223,293 | 2131 | |
| Not in the labor force | 3,085,952 | 1,032,883 | 964,849 | 1,088,220 | |
| All foreigners | All | 229,765 | 40,177 | 179,445 | 10,143 |
| Wage earners | 76,381 | 0 | 75,962 | 419 | |
| Entrepreneurs | 8487 | 0 | 8438 | 49 | |
| Not in the labor force | 144,897 | 40,177 | 95,045 | 9675 | |
| Estonia | All | 50,367 | 10,830 | 37,963 | 1574 |
| Wage earners | 22,834 | 0 | 22,684 | 150 | |
| Entrepreneurs | 1975 | 0 | 1973 | 2 | |
| Not in the labor force | 25,558 | 10,830 | 13,306 | 1422 | |
| Russia | All | 30,813 | 4948 | 22,824 | 3041 |
| Wage earners | 7088 | 0 | 7041 | 47 | |
| Entrepreneurs | 1040 | 0 | 1031 | 9 | |
| Not in the labor force | 22,685 | 4948 | 14,752 | 2985 | |
| Sweden | All | 8174 | 615 | 5613 | 1946 |
| Wage earners | 2936 | 0 | 2896 | 40 | |
| Entrepreneurs | 368 | 0 | 360 | 8 | |
| Not in the labor force | 4870 | 615 | 2357 | 1898 | |
| China | All | 8042 | 1053 | 6931 | 58 |
| Wage earners | 2382 | 0 | 2381 | 1 | |
| Entrepreneurs | 505 | 0 | 500 | 5 | |
| Not in the labor force | 5155 | 1053 | 4050 | 52 | |
| Somalia | All | 7261 | 2567 | 4596 | 98 |
| Wage earners | 500 | 0 | 500 | 0 | |
| Entrepreneurs | 3 | 0 | 3 | 0 | |
| Not in the labor force | 6758 | 2567 | 4093 | 98 | |
| Thailand | All | 7229 | 951 | 6244 | 34 |
| Wage earners | 2082 | 0 | 2081 | 1 | |
| Entrepreneurs | 430 | 0 | 430 | 0 | |
| Not in the labor force | 4717 | 951 | 3733 | 33 | |
| Irak | All | 7073 | 1716 | 5279 | 78 |
| Wage earners | 550 | 0 | 550 | 0 | |
| Entrepreneurs | 140 | 0 | 140 | 0 | |
| Not in the labor force | 6383 | 1716 | 4589 | 78 | |
| India | All | 4992 | 981 | 3971 | 40 |
| Wage earners | 1658 | 0 | 1657 | 1 | |
| Entrepreneurs | 115 | 0 | 115 | 0 | |
| Not in the labor force | 3219 | 981 | 2199 | 39 | |
| Turkey | All | 4595 | 790 | 3779 | 26 |
| Wage earners | 961 | 0 | 960 | 1 | |
| Entrepreneurs | 561 | 0 | 561 | 0 | |
| Not in the labor force | 3073 | 790 | 2258 | 25 | |
| UK | All | 4427 | 210 | 3888 | 329 |
| Wage earners | 1853 | 0 | 1836 | 17 | |
| Entrepreneurs | 373 | 0 | 368 | 5 | |
| Not in the labor force | 2201 | 210 | 1684 | 307 | |
| Germany | All | 4112 | 290 | 3341 | 481 |
| Wage earners | 1737 | 0 | 1707 | 30 | |
| Entrepreneurs | 242 | 0 | 238 | 4 | |
| Not in the labor force | 2133 | 290 | 1396 | 447 |
All values are for 2015.
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