Munich Personal RePEc Archive

The Infrastructure and Other Costs of Immigration

Musgrave, Ralph S. (2008): The Infrastructure and Other Costs of Immigration.

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Since 2002, the British Government department responsible for immigration, the Home Office, has claimed immigrants pay £2-5bn more in tax than they withdraw from the public purse. The workings behind this figure omit the cost of the additional infrastructure investments that immigrants necessitate (no small omission). The conventional wisdom is that funding government owned assets is a burden on the community at large, whereas funding private sector business assets is not. However the distinction between public and private sectors is artificial. Thus funding the private sector investments is just as much a burden on the community as funding the public sector. Thus it is the community at large funds the additional private sector business assets that immigrants necessitate. The important distinction is not between public and private sector assets, but between what might be called “communally used” assets (public and private) and assets which only one person or family benefits from, of which housing is much the most important. That is, the community at large does not pay for immigrants’ housing: immigrants themselves do. Assets other than housing in the UK amount to about £30,000 per head. The investment burden on the community is around double this because the typical immigrant has one child shortly after arriving. Immigrants do eventually pay this back – after about a generation. But by that time interest on the debt (which is not paid back) resembles the debt itself. Having arrived at a figure for the investment burden that immigrants impose, there is then the question as to what effect this has on the overall contribution that immigrants make, or burden that they impose. Answering this question involves answering a number of subsidiary questions about what can and cannot be debited to immigration. The four main subsidiary questions are thus. 1. Should the cost of educating immigrants’ children (£7.6bn a year) be attributed to immigration? The Home Office, Migrationwatch and others have disagreed on this for some time. It is shown that Migrationwatch is right: these educational costs should be attributed to immigration. 2. In past years, some Government current spending (as opposed to capital spending) was financed by increasing the national debt. Are immigrants (who have not benefited from this spending) effectively paying interest on this part of the national debt? If so, this would be unfair. It is shown that immigrants are not in fact paying for this past current spending. 3. Several studies have recently claimed that immigrants reduce interest rates. These studies all make the same mistake: they assume that interest rate reductions are the only weapon that governments have to raise demand with a view to employing extra workers (immigrants). In fact it is an expansion of the monetary base over the decades and centuries which has created the extra demand that immigrants necessitate. Moreover, interest rates have to rise a finite amount in reaction to immigration because someone somewhere has to forgo consumption to fund the additional investments that immigrants necessitate. 4. Do remittances reduce real incomes for natives? It is concluded that they do. The final figure for the cost imposed on UK natives by immigrants (about £12bn a year) is tentative, first because quantifying the variables that produce the £12bn is more informed guesswork than accurate measurement. Second, some of the official figures on which the estimate is based could be inaccurate. For example, there is evidence that the official figure for the total value of all assets in the UK could have been underestimated by 100% or more; and the real figure for remittances could conceivably be ten times the official figure. In short the cost imposed on UK natives by immigrants could easily be half or double the above £12bn.

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