average service use and average tax versus tracking actual use through administrative records. Not surprisingly, the resulting calculations reach quite different conclusions, some finding net costs of immigrants, others finding net benefits. In the absence of a systematic methodology, it is difficult to evaluate the competing claims.

In this chapter we propose a basic economic framework for evaluating the fiscal impact of immigrants, addressing the complicated issues of demographic characteristics, skill levels, multiple levels of government, and the dynamic effects of a changing population. Although immigrants are the principal example for this framework, it has application beyond the immigration debate. In reality, immigration is merely population growth with particular population characteristics. The model seeks to separate these two aspects: expanding population and the change in population characteristics. The same framework could be used to model other population changes such as a baby boom. Immigration is a special case primarily because it can be influenced more easily by policy choices.

In the second section we set out our basic economic framework for assessing the fiscal impacts of population growth. The third section begins with the specification of a ''neutrality proposition" that identifies an economic environment that makes population growth fiscally neutral. In that section we explore the factors that are relevant in evaluating the consequences of different patterns of growth, distinguishing between population increases arising from uniform shifts in all groups and disproportionate increases in particular groups, such as the elderly or the unskilled. In the fourth section we look at the particular nature of U.S. population growth due to immigration, applying the results of the third section to unveil the types of fiscal costs and benefits likely to accompany immigration. Finally, in the fifth section we review how the existing literature fits into our framework, permitting us to surmise the costs and benefits improperly assessed or missed in these various studies.


In this section we develop an elementary economic model for analyzing population growth in general and immigration in particular. Although our proposed model may at first appear more complex than necessary, we believe it is the simplest possible framework that can address the basic issues faced by researchers attempting to conduct fiscal impact studies of immigration. For reasons detailed below, we conclude that at a minimum the model must include the following features:

  1. multiple periods,

  2. three generations,

  3. workers distinguished by high and low skills,

  4. two consumption goods categorized by the level of sales tax,

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