The above discussion has outlined ways in which immigration affects the public budget
constraint. In doing so it can affect the overall affordability of public spending as well
as the relative attractiveness of different public spending items. In so doing,
immigration may prompt changes in tax and public spending decisions in receiving
countries. Correlations between tax receipts, public spending levels or other indicators
of fiscal position and rates of immigration will pick up the total effect, incorporating
both the impact on the government budget constraint and any chosen policy response.
This total effect is not something uninteresting and in a sense answers the question of
how immigration affects public finances in a fully comprehensive way but it needs to be
distinguished from what it does not answer, which is the question of whether
immigration eases affordability of the public sector or, in other words, whether
immigrants pay their way in fiscal terms. Since comparisons of fiscal outcomes in
countries with differing immigration rates is a plausible source of evidence on fiscal
effects of immigration it is, therefore, important to understand not only the effects on
government budget sets but also the political economy of tax and public spending in
the context of immigration. This is the point of the current Section.