Greater levels of immigration generally lead to greater welfare expenditure, but the overall fiscal effects of immigration on a country are usually small, and can be positive, according to a review of the evidence on immigration and the welfare state by faculty member Isabel Ruiz and colleagues, published in the Oxford Review of Economic Policy. Meanwhile, attitudes towards redistribution of wealth through the tax system and welfare state are strongly intertwined with feelings about immigration.
The article reviews the evidence surrounding three key questions: first, whether generous welfare systems attract immigrants disproportionately (the ‘welfare magnet hypothesis’); second, the extent to which immigrants’ net fiscal contributions are positive, negative, or neutral; and third, how public attitudes toward immigration intersect with concerns about the welfare state.
On the first question – whether generous welfare systems attract immigrants disproportionately – the evidence is mixed. “The most robust studies support the idea that welfare generosity can influence migration decisions, but factors such as social and family networks seem to play a more significant role in where migrants decide to go”, says Isabel.
In terms of governments’ reactions, some countries increase welfare spending to mitigate the economic insecurity experienced by their own populations in the face of immigration and globalisation. Other governments, however, compete to have the least attractive welfare benefits in order to avoid attracting needy migrants: evidence shows that countries and subnational states will adjust their welfare levels dependent on neighbouring welfare provision. “Over time, this risks a ‘race to the bottom’ that reduces welfare standards for everyone”, says Isabel.
The second question – whether immigrants make positive or negative net financial contributions – is complex to investigate, and so unsurprisingly the available evidence is mixed. “What is clear is that the overall fiscal impact of immigration on a country – that it, how any increased costs of immigrants balance out against their increased contributions through taxes and spending – is small”, says Isabel. “Most estimates for the UK, for example, are that immigrants affect GDP by somewhere between -1% and +1%.”
There are differences by migrant groups: EU immigrants to the UK have tended to make a more positive net fiscal contribution than non-EU immigrants, for example; while more skilled immigrants made a higher positive contribution to the UK’s finances than the average UK household. One study estimated that in the US, despite public concerns about whether refugees cost the country, the 86% reduction in refugees and asylum-seekers between 2016 and 2020 actually cost the country over $2 billion annually.
This finding highlights a key difference between studies on fiscal impact: whether the analysis is short- or long-term. In the refugee case, early draws on welfare were replaced over time by strong integration into the labour market. Time horizons are a key policy consideration: high levels of immigration can make a big short-term positive financial impact for ageing societies by increasing the workforce, but over the long term this immigration level would need to be sustained, as the initial immigrant population will age out of the workforce.
On the third question, how public attitudes toward immigration intersect with concerns about the welfare state, most studies show that higher immigration levels tend to reduce support for the welfare state. Negative attitudes towards immigration are strongly associated with lower support for redistribution of wealth. Priming people to think about immigration before asking them their views on redistribution tends to produce answers that are less favourable towards redistribution and welfare support. “This is largely driven by the perception that immigrants place a disproportionate burden on welfare systems”, says Isabel, “which is often itself associated with negative stereotypes, or ideas about immigrants being less deserving of welfare than native citizens.”
Such attitudes were often accompanied by misperceptions: for example, overestimating the number of immigrants in a country and overestimating their economic dependence. “The relationship between attitudes to immigration and attitudes towards redistribution of wealth – through the tax system and welfare system – has profound policy implications for governments”, says Isabel. “In high-income countries with ageing populations, the welfare state may be powerfully boosted by immigration – both in terms of increased tax revenue from a bigger workforce and through workers willing to take on roles in the care sector, where recruitment is difficult. Yet if higher immigration reduces support for the welfare system itself, it may be less of a benefit for welfare. Ultimately, the future of the welfare state will depend on policies that foster inclusion, ensure fiscal sustainability, and address the needs of both native and immigrant populations.”
'Immigration and the welfare state’, by William L Allen, Mariña Fernández-Reino, and Isabel Ruiz, was published in the Oxford Review of Economic Policy, Volume 41, Issue 1, Spring 2025.
