Wednesday, 1 June 2016

Comment on Migrationwatch's Analysis of the Fiscal effects of Immigration to the UK in 2014/15

By Christian Dustmann and Tommaso Frattini
Centre for Research and Analysis of Migration (CReAM)

MW has extended our analysis of the fiscal impact of immigration to the UK (Dustmann and Frattini 2014) to fiscal year 2014, a year for which the data were not available when we wrote our paper. However, while they claim to replicate our analysis in most points, they only consider that specific year, rather than computing the cumulative fiscal contributions of all immigrants who arrived since 2000, as we did.

It should be noted that the idea of our paper was to compute the contribution of EEA immigrants (A10 and “old Europe”) for those who entered the country after 2000, and up until the end of the data window (which was 2011 for our paper). We believe that this calculation answers the key policy question, which is “What is the net fiscal contribution of immigrants who arrived in the UK since year 2000 up until today”, or “What is the net fiscal contribution of immigrants who arrived in the UK since year 2000 up until today, relative to natives”. In that way, we capture entire entry cohorts of immigrants up until the present day.

What MW did was just choosing one year only – 2014. This tells us the rate at which the cumulated contribution of immigrants is growing in 2014 only.  This is certainly a less interesting question than the question we pose. For that particular year, they show that EEA immigrants who arrived since 2000 make a roughly neutral net contribution.  It would remain true that the cumulative contribution over the last 15 years must be positive.  It should also be noted that the net fiscal contribution of EEA immigrants even for that one year is still higher than that of natives. In fact, MW estimates that in 2014 natives contribute to the Exchequer about 85% of what they cost, thus making a substantial negative fiscal contribution.

A couple of additional points are worth noting.

1)      The central scenario analysed by MW is one where recent immigrants are assumed to make no contribution to corporate taxes. However, as we discuss in our study, the allocation of corporate taxes and business rates raises complicated questions of incidence.  The fact that businesses write the cheques does not mean that the burden do not fall ultimately on consumers or workers. In fact, there is a literature in economics that suggests that it is workers and consumers who ultimately pay the major share of such taxes, if not all. Our analysis was taking no stance on this debate, apportioning  capital and corporate tax payments, net of the percentage likely to be paid by foreign shareholders, on a per capita basis among the adult population. When MW adopts this assumption, which we believe is more realistic and grounded in economic evidence, they find that recent EEA immigrants have made an overall fiscal contribution of £1.5 million in 2014.

2)      MW emphasise in their study mostly their results for the entire resident immigrant population in the UK in 2014. As we have made repeatedly clear, in our paper and in other comments, this is a figure that is extremely difficult to interpret, and it is not clear what question it answers. It reports the contribution at one point in time of a very heterogeneous population of immigrants, many of whom have entered several years or even decades ago, and any contributions they may have made earlier is ignored. Moreover, a substantial fraction of immigrants who arrived at some time in the past have returned to their home countries by 2014, after possibly spending their most productive years in the UK and contributing to the fiscal coffers. We believe that this figure is therefore not very informative.