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Migration Effects on Municipalities’ Expenditures

Erik Mäkelä and Matti Viren EMAIL logo
From the journal Review of Economics

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.

JEL Classification: H72; J15

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:

FBforeign 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
POPtotal municipality population
DENSpopulation density (population/municipality area in square kilometers)
OLDshare of old (>65 years) people of total municipality population
YOUNGshare of young (<15 years) people of total municipality population
Yincome 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
TCtotal 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
EDUtotal (net) education costs
SOStotal (net) costs for health and social services
UNthe unemployment rate in the municipality
UFunemployment rate of foreign citizens in the municipality
Leftshare of municipality council seats of the following parties: Social democrats, the Greens and the Left party
FXdummy for an arrival for first foreigners to the municipality
STAFFtotal municipality personnel/POP
REVtotal tax revenues of the municipality
TAXthe municipality tax rate
Pprice index of municipalities’ production
Wwage index of municipalities’ employees

Descriptive statistics for 2014

MeanMedianMaximumMinimumStd Dev
TC5875580992294352767
Dens63,1710,493364,310,17256,68
EDU140513832199961198
FB1,961.509,600,301,615
Old23.3924.3040,308.705.74
Young16.2316,0032,202,106.55
POP16,9485816620,71576149,406
Left0,250,240,600,000,12
SOS3928386960812710575
UN14.0914.1026.203.503.97
STAFF0,060,060,130,000,02
REV3368328863742323528
TAX20,4720,5022,2518,000,81

All values, except for ratios, are (unweighted) per capita values

Some descriptive statistics of migrants in Finland by major countries

Age categoriesAll0–1718–6465-
All nationalitiesAll5,487,3081,073,0603,291,1451,123,103
Wage earners2,022,54801,999,52023,028
Entrepreneurs233,9110231,7312180
Not in the labor force3,230,8491,073,0601,059,8941,097,895
FinlandAll5,257,5431,032,8833,111,7001,112,960
Wage earners1,946,16701,923,55822,609
Entrepreneurs225,4240223,2932131
Not in the labor force3,085,9521,032,883964,8491,088,220
All foreignersAll229,76540,177179,44510,143
Wage earners76,381075,962419
Entrepreneurs84870843849
Not in the labor force144,89740,17795,0459675
EstoniaAll50,36710,83037,9631574
Wage earners22,834022,684150
Entrepreneurs1975019732
Not in the labor force25,55810,83013,3061422
RussiaAll30,813494822,8243041
Wage earners70880704147
Entrepreneurs1040010319
Not in the labor force22,685494814,7522985
SwedenAll817461556131946
Wage earners29360289640
Entrepreneurs36803608
Not in the labor force487061523571898
ChinaAll80421053693158
Wage earners2382023811
Entrepreneurs50505005
Not in the labor force51551053405052
SomaliaAll72612567459698
Wage earners50005000
Entrepreneurs3030
Not in the labor force67582567409398
ThailandAll7229951624434
Wage earners2082020811
Entrepreneurs43004300
Not in the labor force4717951373333
IrakAll70731716527978
Wage earners55005500
Entrepreneurs14001400
Not in the labor force63831716458978
IndiaAll4992981397140
Wage earners1658016571
Entrepreneurs11501150
Not in the labor force3219981219939
TurkeyAll4595790377926
Wage earners96109601
Entrepreneurs56105610
Not in the labor force3073790225825
UKAll44272103888329
Wage earners18530183617
Entrepreneurs37303685
Not in the labor force22012101684307
GermanyAll41122903341481
Wage earners17370170730
Entrepreneurs24202384
Not in the labor force21332901396447

All values are for 2015.

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Published Online: 2018-2-1
Published in Print: 2018-3-26

© 2018 Oldenbourg Wissenschaftsverlag GmbH, Published by De Gruyter Oldenbourg, Berlin/Boston

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