{"id":6952,"date":"2025-02-10T16:00:19","date_gmt":"2025-02-10T15:00:19","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=6952"},"modified":"2025-02-10T16:00:19","modified_gmt":"2025-02-10T15:00:19","slug":"how-immigration-changes-municipal-budgets","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2025\/02\/10\/how-immigration-changes-municipal-budgets\/","title":{"rendered":"How Immigration Changes Municipal Budgets"},"content":{"rendered":"

The arrival of migrants often sparks distrust. Citizens worry not only about labor market impacts but also about fiscal revenues and public expenditure. It is worth examining what happens at the local level to understand how immigration affects the budgets of Italian municipalities. Drawing definitive conclusions is challenging, but the contrast with what occurs in U.S. counties is thought-provoking.<\/em><\/p>\n

 <\/p>\n

Migration flows from abroad generally benefit the labor market of the host country. Economic research has demonstrated this through numerous studies. The presence of foreign workers does not typically compromise natives\u2019 job opportunities, as migrants tend to work in sectors and occupations avoided by natives and where companies struggle to find personnel. Moreover, the influx of low-skilled migrants reduces costs and increases the availability of certain services, such as domestic work, childcare, and elder care. This allows other household members, particularly women\u2014especially those with higher education\u2014to dedicate less time to domestic duties and participate more in the labor market. Conversely, when migrants are highly educated, they boost productivity and technological innovation, generating new job opportunities.<\/p>\n

How Revenues and Expenditures Change Locally<\/strong><\/h3>\n

From an economic perspective, what explains hostility toward immigration? Studies show widespread concern among natives about the fiscal effects of immigration, exceeding their worries about its labor market impact.<\/p>\n

\u201cFiscal effects\u201d refer to how immigration influences public revenues and expenditures. On one hand, voters fear higher taxes due to migrants, especially low-skilled ones. On the other, there are concerns about migrants straining access to public services. At the same time, citizens and public administrators recognize that migrants can support public finances, particularly in aging societies, by lowering the average age of residents and increasing fertility rates.<\/p>\n

Additionally, migrants\u2019 contributions to public coffers and the expenditures their presence entails vary by administrative level (national or local). Revenues from income tax, indirect taxes (like VAT), and social security contributions are more significant for central governments, while property tax revenues are more critical at the local level. Similarly, services provided by national and local governments differ. This article focuses on immigration\u2019s fiscal impact at the local level.<\/p>\n

In many countries, including the United States and Italy, migrants earn lower average wages than natives. Their arrival thus reduces the average income in destination areas, impacting the taxable income base (the average value used to calculate income tax after deductions and reductions). Changes may also occur in the property tax base, even when based on cadastral value, as in Italy (explained shortly).<\/p>\n

Local governments may respond by adjusting tax rates, central governments may alter transfers to local administrations, or spending reductions may be implemented. In Italy, the U.S., and other countries, local governments must balance their budgets, meaning total expenditures can only increase if total revenues rise. Alternatively, expenditure allocations among different categories may shift.<\/p>\n

The arrival of migrants can also change the types of services citizens demand from local governments. Studies suggest that one consequence is reduced public support for redistribution policies aimed at disadvantaged groups. However, the opposite might occur: increased demand for public goods and services to facilitate migrants\u2019 integration. Moreover, many social services provided locally are linked to beneficiaries\u2019 income. An increase in migrants with relatively low incomes could lead to higher demand for these services. To maintain budget balance, local authorities would need to reduce other expenditures or adjust local tax rates.<\/p>\n

Thus, migration presents local governments with a range of potential new situations and demands, requiring significant budgetary adjustments.<\/p>\n

Budgets in U.S. Counties and Italian Municipalities<\/strong><\/h3>\n

What has actually happened locally in individual countries? A study by Anna Maria Mayda, Mine Senses, and Walter Steingress (Immigration and Provision of Public Goods: Evidence at the Local Level in the US<\/em>) found that migrants settling in the U.S. between 1990 and 2010 had, on average, no fiscal effect on per capita local public spending (the budget remained unchanged as revenues and expenditures changed proportionally). However, this is the average effect. A more detailed analysis highlights the role of migrants\u2019 skill levels. In U.S. counties where the proportion of low-skilled migrants increased, local per capita revenues and spending decreased. Conversely, in counties where highly skilled migrants increased, both revenues and spending rose. Data analysis attributes this to changes in the tax base, namely the average income of residents and property values, which either fell or rose depending on whether migration was low- or high-skilled.<\/p>\n

In Italy, our study (How do immigrants affect local public finances? Evidence from Italy<\/em>) estimates immigration\u2019s impact on municipal finances. Between 2008 and 2015, migration flows to Italy increased municipalities\u2019 budget surpluses (on a per capita basis). Total per capita revenues rose with a greater presence of foreign residents, while total per capita spending remained largely unchanged.<\/p>\n

Increased Property Tax Payments<\/strong><\/h3>\n

Among municipal revenues in Italy, property taxes\u2014particularly the municipal property tax (IMU)\u2014were most influenced by migration flows. In 2012, IMU replaced the municipal real estate tax (ICI). Along with two other property-related taxes\u2014the indivisible services tax (TASI) and waste tax (TARI)\u2014IMU accounts for about a third of Italian municipalities\u2019 current revenues. This may seem surprising since IMU is calculated based on cadastral property values, which have remained largely unchanged for years. However, IMU only applies to second homes, not primary residences. When previously exempt properties become taxable (e.g., due to changes in usage), the IMU tax base changes.<\/p>\n

Only 20% of immigrant households in Italy own their homes, while 80% rent\u2014a stark contrast to Italian households. Migrants\u2019 arrival increases rental housing demand, causing previously exempt properties, such as those loaned to relatives, to be rented out and thus become taxable. As the number of tax-exempt properties declines and taxable properties increase, IMU revenues rise.<\/p>\n

To further clarify the mechanism, consider the example of a parent and a child living in two separate owned apartments. According to the Constitutional Court (ruling no. 209\/2022), both properties qualify for IMU exemption since they are both used as primary residences. However, if rental housing demand increases due to a growing foreign population, the parent and child might find it more advantageous to rent out one of the apartments and live together in the other. In this case, one of the properties would no longer be classified as a primary residence and would instead fall into the category subject to the tax, thereby increasing the tax base and IMU revenue.<\/p>\n

Current Spending Rises, Investments Decline<\/strong><\/h3>\n

What have municipalities done with the additional revenue? During our study period, municipal spending was constrained by the Internal Stability Pact, which limited spending increases. Our analysis indicates a reallocation of municipal budgets, favoring current expenditures over capital investments. This isn\u2019t surprising since lower average incomes among migrants likely increased demand for public services targeting disadvantaged groups, such as cultural programs, integration initiatives, and public transport. Given constant total spending, municipalities deferred investments.<\/p>\n

These findings suggest that migration\u2019s effect on local public finances in Italy cannot be neatly categorized as “positive” or “negative.” Our study emphasizes the importance of institutional frameworks in shaping immigration\u2019s fiscal impact. Comparing Italian municipalities with U.S. counties reveals that differences stem from distinct fiscal systems. A deeper understanding of the interplay between a country\u2019s institutional framework and migration flows is crucial for crafting policies that manage rather than react to immigration.<\/p>\n

 <\/p>\n

Rama Dasi Mariani is a researcher in political economy at Roma Tre University and a fellow of the Global Labor Organization and the Centre for Economic and International Studies (CEIS) at the University of Rome \u201cTor Vergata,\u201d where she held a research position from 2019 to 2022.<\/em><\/p>\n

Anna Maria Mayda is a professor of economics at Georgetown University. She has worked at the World Bank and served as a visiting scholar at institutions such as the IMF, the University of Milan, EIEF in Rome, and CEPII in Paris. She is a research affiliate at CEPR, IZA, and CReAM.<\/em><\/p>\n

Furio C. Rosati is a professor of public finance at the University of Tor Vergata, Rome, Faculty of Economics.<\/em><\/p>\n

Antonio Sparacino has worked at the Bank of Italy since 2017, focusing on data analysis and public finance research within the State Treasury Service. Previously, he dealt with structural funds for the Tuscany Region.<\/em><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

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