Decomposing Welfare Wedges: An Analysis of Welfare Dependence of Immigrants and Natives in Europe

Article by Peter Huber and Doris Oberdabernig in KYKLOS ,Vol. 69 – February 2016 – No. 1, 82–107:

In the past few decades, the European Union (EU) has experienced a steady increase in the share of immigrants residing on its territory, and immigration has become the primary source of population growth (Eurostat 2011). Some analysts (e.g. Razin and Sadka 1999; Zimmermann 2008) argue that this development is beneficial for European welfare states as immigrants generate additional revenues to finance the increasing welfare expenditures related to population aging. This call for increased immigration is, however, somewhat at odds with the fear of many Europeans (documented by Boeri 2010) that immigrants are a fiscal burden on the welfare state. This may be the case if – as is often claimed in the public debate – immigrants have access to cash transfers beyond what eligibility rules would imply. Alternatively, this may occur if immigrants are poorer than natives, have other personal characteristics that make them more likely to benefit from social transfers or if, as maintained by the welfare magnet hypothesis (Borjas 1999), poorer or less able immigrants are disproportionately strongly attracted by the more generous European welfare systems.