Immigration and the Municipal Economies in Sweden: The Impact of Population Change on Aggregate Outcomes

Sammanfattning: Asylum immigration in Sweden entails net fiscal costs on national level, but the impact on individual municipalities is not extensively researched. If there are net costs also on municipal level, it could be argued that the management principle of controllability is violated, as the allocation of asylum immigrants is decided on national level, but the long term costs are borne mainly by the municipalities. This study aims to explain how the change in population composition through immigration mechanically has affected the development of the average earned income and the labor market participation rate on national and municipal level during the period 1985-2015 in Sweden. This was achieved by decomposing the total development with respect to Swedish and foreign background, and assessing the separate effects of increased proportion of foreign background, and the relatively different development of outcomes in the groups. On average, we found negative effects attributable to changes in the population composition, mainly related to the worse development of outcomes among those with foreign background. Immigration has had a positive effect on the development of average earned income in 9 out of 290 municipalities, but not in any municipality with respect to the development of the labor market participation rate. In conclusion, the results suggest that on average, the direct effect of immigration on municipal tax revenues is negative, with substantial effects in the municipalities with the worst relative earned income development. The compulsory allocation of asylum immigrants to municipalities is likely to induce long term costs that can be affected only to a limited extent by the municipalities themselves, violating the principle of controllability.