Association for Public Policy Analysis & Management

Despite a large literature on the economic impact of immigrant inflows in the U.S., how immigrant inflows affect local public goods provision, or fiscal policy in general, has received little attention. This paper pursues this subject in the context of public education. Specifically, I investigate the causal impact of immigrant children on public education spending from 1990 to 2010. In addition, I investigate various mechanisms through which the inflows of immigrant children lower education spending. I then ask how inflows of immigrant children affect various dimensions of school quality due to lower per-pupil spending.

I construct a novel dataset on the 1999-definition Consolidated Metropolitan Statistical Areas (CMSAs) for empirical analysis. The dataset covers MSA-level school finance data and a wealth of housing and demographic characteristics for both immigrant and native headed households in 1990, 2000, and 2010. The key explanatory variable is measured as the changes in fraction of immigrant children in a decade.  Aggregating school-district level spending data to MSA-level disentangles the effect of immigrant inflows on education spending from that of dynamic Tiebout sorting. To quantify the causal impact, I use an instrumental variable defined as the predicted inflows of immigrants to a metropolitan area giving the 1970 geographic distribution of immigrants from different ethnicities. I find that if the immigrant fraction increases from the current mean value of 9.4% to 19.4%, the immigrant inflows would cause per-pupil current spending decrease by 11-16%; this is equivalent to an increase of $1,210 to $1,760 annually per student at the 2010 spending level ($11,000 per student).

Immigration affects public education spending in a number of ways, both directly and indirectly. The direct impact is due to the fact that immigrant households have lower mean household income, lower property value per household, and larger number of children per household. I therefore compare the fixed-effect estimation on various specifications with and without the above three variables to quantify the lower bound of the direct fiscal impact. The lower bound is justified by that fact that immigrants usually self-select into metropolitan areas with booming economy. I find that the direct fiscal impact due to immigrant inflows accounts for approximately 30% of the decrease in per-pupil spending ($500 per pupil). I further explore the indirect responses due to the lack of political power of immigrant population and decreasing political support for public education because native household enroll their children into private schools.

Finally, I investigate how lower spending caused by immigrant inflows translates into different dimensions of school quality. I find that salary spending per student is largely affected by immigrant inflows: salary spending per student explains 60-70% of the decrease in per-pupil spending due to immigrant inflows. I do not find a significant impact on school size and pupil-teacher ratio.