Migration Effects on Municipalities’ Expenditures

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.