Unauthorized Immigration and Local Government Finances

Abstract

This paper examines how unauthorized immigration affects the fiscal health of local governments. Using countries of origin and arrival dates, we isolate immigration driven by social, economic, and political conditions. We predict immigration using a shift-share instrument based on pre-existing population distributions. In areas with structurally tight labor markets, unauthorized immigration explains lower municipal bond yields. Areas with typical labor market conditions experience higher yields, as do areas with “sanctuary” status. These effects accompany increased unemployment rates and expenditures on public amenities, including welfare assistance, construction, education, and law enforcement. These expenditures are not offset by higher tax revenues.

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