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

Abstract

The aim of this paper is to analyze the relationship between immigration and redistributive public spending by using the recent, massive arrival of immigrants in Spain. Specifically, we focus our analysis on the effect of 1998-2006 changes in local immigrant density on contemporaneous changes in municipal spending in social services. To address the potential endogenous location of immigrants, we adopt an instrumental variables approach that uses the distribution of rental housing in 1991 to predict the location of immigrant inflows. The results indicate that (per capita) social spending increased less in those municipalities that recorded the largest increases in immigrant density. We interpret our results as a reduction in natives' demand for redistributive public spending.