Immigration and the public finances: Boon or burden? RHETORIC too often crowds out the facts in any discussion of immigration. Research published this week by the OECD, an inter-governmental think-tank, provides some valuable ballast. The research, which is published in the OECD's latest "International Migration Outlook," looks at the fiscal impact of immigrants (defined as the foreign-born) in 27 rich countries. The study draws on household-survey data to make detailed comparisons of immigrants and the native-born in terms of their net direct contribution to the public purse - the difference between what they pay in direct taxes and social-security contributions, and what they receive in benefits. The study casts light on one big worry - that immigrants are welfare junkies. In fact, their net direct contribution to the public purse is generally positive. The big exception is Germany, which has many foreign-born pensioners who came from Turkey as guest workers in the 1960s and from the former Soviet Union in the 1990s. Although immigrants generally pay their way, their net direct contribution does tend to be smaller than that of the native-born. But this arises from their paying less tax rather than receiving more benefits. And the main reason for this shortfall in taxation is lower employment, especially among women. If host countries want to squeeze the most out of immigrants, the answer is to get more of them into work. The fiscal impact of immigrants extends beyond their net direct contribution to the public finances. On the revenue side, immigrants also pay VAT on their consumption (though to a lesser extent than the native-born because their incomes are usually lower). On the other side of the ledger, they use publicly funded services such as health care and education. Since they are generally younger than the host population, immigrants" medical costs tend to be lower than those of the native-born. But a younger population is also likely to incur higher schooling costs. After adding these elements to the net direct contribution, the OECD finds that immigration generally has a favourable impact on national budgets, contributing 0.3% of GDP on average in 2007-09. The contribution is largest in Luxembourg (see table); Germany's shortfall is the biggest. Should these calculations also include revenues and spending that cannot be specifically assigned to immigrants? Some expenditure such as defence has to be incurred anyway. Debt interest is essentially a legacy cost. If these two items are excluded but other public spending (as well as all other revenues) is allocated to immigrants by their weight in the population, the impact of migration becomes slightly negative (minus 0.1% of GDP on average). The OECD's overall conclusion is that migration is "neither a significant gain nor drain for the public purse." That finding will not be the last word on the question. This analysis is mainly based on data before the financial crisis, which may flatter immigrants" contributions. They do not capture the lifetime effects of migration, which in principle is the best way to appraise its fiscal effects but in practice is subject to too many uncertainties. But the study clearly shows that the extremes of the debate are just that - extreme.