Immigrants cost more money than they contribute to the state, a European study shows

The net fiscal impact is the indicator to assess how much a citizen contributes to generating public revenue and what part of this revenue they capture. That is, the difference between what they contribute and what they receive. This is essential to addressing the ongoing debate about the migration challenge and the welfare state crisis in the eurozone.

A recent study on the economic impact of immigration in the Netherlands highlights some dysfunctions.

We are talking about The Long-Term Fiscal Impact of Immigrants in The Netherlands. Its authors state that only 20% of immigrants present a positive fiscal contribution throughout their lives. That is, for the rest (80%), fiscal expenditure exceeds revenue. This, however, has some nuances.

For example, first-generation immigrants from developed countries generate a positive average contribution of 42,000 euros per person. Meanwhile, those from Africa represent a deficit of 167,000 euros per person on average.

The reality about immigration and fiscal impact

Socioeconomic conditions are also relevant. Labor immigrants generally have a positive contribution to fiscal balance (more revenue than expenses). Meanwhile, refugees and family reunification represent more of a burden than a benefit.

The fiscal impact of refugees, according to the report, costs 400,000 euros per person over their lifetime to the Dutch treasury. This is due to low labor participation, sometimes with very low wages (very low contributions), compared to social transfers.

Another interesting fact relates to second-generation immigrants. Although they have educational levels similar to natives, the returns of this education in the labor market are lower. This translates into lower tax revenue.

If Western immigrants have a positive impact of 210,000 euros, non-EU immigrants represent a deficit of 315,000 euros. This is because these immigrants, unlike their parents, were already born in the Netherlands. Therefore, they consume more resources from birth until death.

This has another implication, which is the crisis in which the welfare state in European countries finds itself. In the case of the second generation, the resources they consume before and after are unable to compensate for what they contribute during their working life. The only ones capable of offering a positive balance are those from developed countries, with skilled jobs and higher salaries.

In the Netherlands, people from Pakistan, Türkiye, and Central Africa cost between 200,000 and 300,000 euros per person. Those with the most negative impact are from West Africa, the Caribbean, Sudan, and Morocco.

Fiscal impact of immigration in the EU

The Dutch study is complemented by the European report on the net fiscal impact of immigration (2020). According to EU data, the positive peak in contributions is reached more quickly in natives than in immigration. This is especially true in the case of those from non-EU countries.

In general, spending on pensions and other old-age benefits represents a very high proportion of social spending. Meanwhile, contributions to social security represent the highest proportion of fiscal contributions, more than taxes and consumption fees.

When comparing the fiscal impact of natives with immigrants from non-EU countries, three facts emerge.

1. Natives contribute more in income taxes.
2. Pension spending is also higher for natives.
3. Social transfers are higher for immigrants born outside.

The fact that natives contribute more taxes and represent a higher cost in pensions is explained because they usually have higher salaries than immigrants. As for social transfers, it relates to sociodemographic characteristics such as the number of children.

One last fact is that there is hardly any difference in the fiscal impact of natives and immigrants with a high level of education. This places the debate not only on whether there should or should not be immigration  but also on what type of immigration we import.

*Sources:

The Long-Term Fiscal Impact of Immigrants in The Netherlands (Jan van de Beek, Joop Hartog, Gerrit Kreffer, and Hans Roodenburg), 2024

Projecting the Net Fiscal Impact of Immigration in the UE (Joint Research Center & European Commission), 2020