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Myth busted: EU migrants no extra burden on taxpayers in more generous welfare states

Free movement of people isn’t a huge financial burden on Europe’s welfare states. Babaroga/EPA via Shutterstock

For many of the eurosceptic parties expected to gain ground in the upcoming European parliamentary elections, migration – and particularly the principle of free movement of people within the EU – is a decisive issue.

The right to free movement means that EU citizens can live and work in another EU country without needing a work permit. While free movement has benefited millions of EU citizens, its consequences have also spurred an intense public debate, especially in the UK in the lead up to the referendum on EU membership. The fact that EU workers have full access to the welfare state in the country where they are working has been a central concern.

Some have argued that free movement encourages so-called “benefit tourism”, the concept that EU citizens migrate purely to take advantage of more generous welfare states in other EU member states, putting extra stress on the public budgets in these countries.

In a recent study I conducted with my colleagues Joakim Palme and Martin Ruhs, we showed this is a myth for the majority of countries in Europe. In fact, the opposite is true: in the European countries which host the majority of EU migrants, these households are a net benefit to the public purse.

Types of welfare system

Our research explored what impact the type of welfare state has on public expenditure and revenue connected to EU migration. We defined five different types of welfare states, or regimes, covering 29 countries within the EU and the European Economic Area.

  • The “basic security” regime: Ireland, Malta and the UK
  • The “continental corporatist” regime: Austria, Belgium, France, Germany, The Netherlands and Switzerland
  • The “Mediterranean corporatist” regime: Cyprus, Greece, Italy, Portugal and Spain
  • The “state insurance” regime: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovenia and Slovakia
  • The “universal” regime: seen in Denmark, Finland, Iceland, Norway and Sweden

These different types of welfare regimes are characterised by varying levels of generosity, eligibility criteria, health and childcare services and different funding principles. In the “basic security” regime, for example, benefits are often means-tested and family benefits are modest, with limited public support for childcare. In the “continental corporatist regime”, meanwhile, benefits vary across occupational sectors and child and elderly care are typically provided by the family. The “universal” regime is characterised by rather generous social insurance linked to earnings and families are supported both through cash benefits and public childcare.

By using recent data on the revenues and expenditures related to EU migration in each of the 29 countries in our study between 2005 and 2015, we were able to compare the effect on the public budget of a typical EU migrant household across these different types of welfare states. Our analysis considered both how migrants contribute to the public budget, for example by paying taxes, and the costs of their use of welfare benefits and services.

We found hardly any differences in how EU migration affects the public budget across the different types of welfare states. In four of the five welfare regimes we studied, where the great majority of EU migrants live, the net contribution to the public purse from the average EU migrant household was clearly positive and didn’t differ significantly across the different types of welfare states. The financial impact of different households – native, EU migrant and non-EU migrant, are presented in the graph below. There is a considerable degree of uncertainty in our estimates, which implies that even though some differences appear rather large, they are not statistically significant.

The countries we identified in the “state insurance” regime, which are mainly in eastern Europe, were the only ones to stand out. In these countries, we found there was a slight negative impact on the public budgets of a typical EU migrant household, meaning that EU migrants in these countries used benefits and services costing slightly more than they provided in taxes. The cost averaged about 600 euros, per household year. But there are few EU migrant workers in these countries so the actual effect on the public budgets was small.

Positive contribution

In further analysis, we found there wasn’t even a statistically significant difference between the contribution to the public budgets of EU migrants in the less generous Anglo-Saxon “basic security” regime in Ireland, the UK and Malta, and the Nordic “universal” regime. These are often portrayed as diametrically opposite. Expenditure per EU migrant household is higher in the Nordic countries, in line with what we would expect in a more generous welfare state. Yet, this higher level of expenditure is more than compensated for by higher revenues from EU migrants, mainly from taxes and social security contributions.

As a matter of fact, when excluding a couple of outliers – Norway, due to its oil revenues, Ireland, because of its large deficits during the financial crisis, and Poland because of issues surrounding migrant data – the net annual contribution from the typical EU migrant household was remarkably similar across the four non-eastern regimes, ranging between 4,800 to 5,500 Euros per year.

We also found that during the period we studied, the average contribution to the public budget from EU migrant households actually surpassed that of households of native born people in all of the regimes except the state insurance one of eastern Europe.

This means that EU migration represents a fiscal asset rather than a liability for the main host countries for EU migrants. In effect, restricting the free movement of workers would, if anything, imply a considerable cost for the public purse of these countries.

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