The Impact of Immigration on the Size of Government: Empirical Evidence from Danish Municipalities

Abstract

Several studies have reported a negative relationship between ethnic heterogeneity and the size of the public sector. One problem with this literature is that ethnic composition is hardly exogenous, which obstructs attempts to reveal causal mechanisms. This paper explores the impact of changes in ethnic heterogeneity in Danish municipalities from 1995 through 2001, a period marked by an unprecedented influx of refugees. A state-sponsored placement policy restricted their choice of residence and required local governments to accept them as citizens. The analysis of the impact of this influx has not revealed any support for the claim of a decline in public sector size.

Immigration, Ethnic Diversity, and Political Outcomes: Evidence from Denmark

“…A number of papers report suggestive results (see, e.g., Knigge, 1998;Lubbers et al, 2002;Golder, 2003;Arzheimer and Carter, 2006;Arzheimer, 2009) but are unable to fully address the issue of endogenous immigrant location choices and establish causality. Closest to the present paper is the work by Gerdes and Wadensjö (2010) and Gerdes (2011) on Danish municipalities. They address the issue of endogenous immigrant location choices by arguing that the distribution of immigrants across Danish municipalities is exogenous (conditional on controls) as a result of a refugee placement policy.…”

“…However, as many immigrants in Denmark are not refugees and many refugees relocate after their initial placement, this approach cannot fully address the identification issue. This might explain why Gerdes and Wadensjö () and Gerdes () do not find the systematic effects of immigration on left–right politics that I find in the present paper…”

Immigration and local spending in social services: evidence from a massive immigration wave

“…Their results suggest that countries receiving larger immigration inflows reduce redistributive public spending. The paper that is closer to ours is Gerdes (2011) who analyzes the effect of immigration on local public spending (daycare, schools, healthcare, and care for the elderly) in Danish municipalities in the period [1995][1996][1997][1998][1999][2000][2001]. He finds that the share of immigrants does not affect the value of publicly provided goods consumed by native Danes.…”

Ethnic Diversity and Public Goods Provision

“…Moreover, recent studies show that ethnic diversity has no economically meaningful impact on the provision of public goods (Gerdes 2011;Hopkins 2009Hopkins , 2011. In particular, Hopkins (2011) argued that, contrary to past studies, the effect of racial diversity on local public goods is small and inconsistent in U.S. municipalities, and limited to nationally salient issues (e.g., criminal justice).…”