EFFECTS OF MASS MIGRATION ON TAXES & REDISTRIBUTION: Evidence from post-war Germany

22 Mar 2018

What happens to taxes and preference for redistribution when a large flow of migrants arrives in a country? New research to be presented at the Royal Economic Society''s annual conference at the University of Sussex in Brighton in March 2018 addresses this question by analysing an historical episode of mass migration: post-war Germany.

The authors – Arnaud Chevalier, Benjamin Elsner, Andreas Lichter and Nico Pestel – note that following the advances of the Russian armies and the redrawing of Germany''s border, 12 million Germans were expelled from their ancestral homes and between 1944 and 1948 moved to a new life in Germany.

These ''expellees'' were destitute and initially relied extensively on the welfare state. The researchers investigate how West-Germany municipalities altered their tax policies to accommodate the greater demands on housing, unemployment benefits and public services.

The results indicate that municipalities where expellees represented a greater fraction of the post-war population increased overall taxes, especially those on farmland and firms'' capital and profits, but not those on properties or wages. They also shifted expenditures from public infrastructure to social welfare. These changes in local taxation persisted until at least the mid-sixties.

Overall, expellees affected redistribution in their local communities from which some locals benefited and others lost out. These changes were for the long term and are still observable nowadays in terms of regional preferences for taxation and spending.

This migration episode is unusual by its size (expellees represented 20% of the West German population) but also by the origin of migrants – they were Germans. As such, they could influence public policies via their electoral power.

Using local election results, the study finds that expellees disproportionally voted for a party that represented them (the GB/BHE), which allowed them to influence public policies despite being a minority. One reason for the gap in taxation persisted between municipalities is that cities with a high share of expellees also experienced higher economic growth.

In addition, even by the end of the twentieth century, inhabitants of municipalities that experienced a high expellee inflow in the post-war have a higher preference for redistribution than inhabitants of low inflow cities.

This episode of mass migration is especially interesting to study for two reasons. First, the full population of Germans living outside the redrawn borders of Germany were expelled; as such, the migrants were not selected and represented a full section of the population.

Second, they did not choose which city to live in Germany but were allocated a residence by the occupying administrations; they could not choose cities that might have been the most welcoming to migrants.

To estimate the effects of migration, the authors collected data on municipal budget, and election results from 1938 until 1965 for cities with more than 10,000 inhabitants. (A reform of municipalities makes it impossible to consistently study them thereafter.)

They then compared the evolution of taxes in the post-war period, in municipalities with similar pre-war characteristics who experienced either a large or a low inflow of expellees. Due to their pre-war similarities, this makes it possible to estimate the effect of the expellee inflows on taxation, spending and preference for redistribution.

Overall, expellees affected redistribution in their local communities from which some locals benefited and others lost out. These changes were for the long term and are still observable nowadays in terms of preference for taxation and spending.

Immigration and Redistribution: Evidence from 8 Million Forced Migrants - Arnaud Chevalier, Benjamin Elsner, Andreas Lichter and Nico Pestel

Prof Arnaud Chevalier

Royal Holloway, University of London | +49 15730468470 | Arnaud.chevalier@rhul.ac.uk