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Free movement of people (3) Free movement of people with immigration taxes?

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Free movement of people (3) Free movement of people with immigration taxes?

The free movement of people brings a great freedom effect. However, in particularly competitive countries it also leads to increased immigration and thus population growth. In order to offset the resulting external costs, the introduction of immigration taxes would offer a liberal solution.

In 2016, Great Britain became the first country to decide to leave the European Union with Brexit. Whether this move has made further future exits more likely or less likely remains unclear. A lot will depend on how the economic situation in Great Britain develops in the next few years compared to the large EU countries Germany and France. The ongoing economic weakness in Germany and the difficulties in France illustrate the inability of key EU members to reform. The debates in Great Britain during the transition phase from the Brexit vote to the actual exit from the EU showed how critically many politicians familiar with the EU viewed it. Accession by the richest European economies, such as Norway and Switzerland, appears unlikely. But membership of Ukraine or Turkey is not very obvious in the next few years for a variety of reasons.

In particular, the free movement of people in the EU was and is one of the central questions for many EU neighbors, such as Great Britain and Switzerland. It is little discussed within the EU itself, although in countries like the Netherlands, similar to non-EU member Switzerland, there are increasing complaints about “density stress” due to immigration.

Free movement of people and free trade

Brexit itself was largely shaped by the debate about migration movements to Great Britain and, according to surveys, the free movement of people in the EU was a relevant influencing factor for the British people’s decision to leave the EU. The free movement of people does have a great effect on freedom, as it allows citizens to settle in another member state without bureaucratic restrictions (freedom of establishment) and to take up work there (freedom of movement for workers).

But the free movement of people does not work in the same way as free trade. Free trade improves import and export conditions. Consumers benefit from cheaper imports. Producers are indeed affected by the increasing price competition in free trade, but new export opportunities are also opened up to them, which makes potential economies of scale realizable and can have a stimulating effect on productivity. In general, free trade therefore leads to relatively symmetrical growth in imports and exports and generates economic growth at a constant population, which in turn increases per capita income and thus creates wealth. Although free trade creates not only winners but also losers, the benefits of free trade outweigh the costs, so that in principle an improvement for everyone could be achieved through suitable redistribution measures.

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The free movement of people has different effects than free trade: it enables improved immigration and emigration options, which is initially very beneficial for citizens. However, the more attractive the political conditions and income levels in a country, the more asymmetrical immigration becomes. In other words: migration usually occurs from less successful states to more successful ones, so that migration flows are often asymmetrical. These asymmetric migration flows can lead to population growth and congestion as more strain is placed on scarce resources such as land, infrastructure and the environment, leading to rising costs. Although the population growth induced by immigration increases the volume of the overall economy, i.e. increases the overall gross domestic product, per capita income usually only increases with particularly highly qualified immigration, which can help to increase total factor productivity. If the immigrants have average qualifications, the per capita income in the recipient country often remains the same, the overall economy is simply expanded without increasing the efficiency of the economy as a whole. The main beneficiaries of the free movement of people are usually the migrants themselves. If their benefits are taken into account, the benefits of the free movement of people also outweigh the costs. In this respect, free movement of people is great. However, in practice, the surplus benefits often cannot be redistributed to compensate the losers of immigration, since the interpretation of the EU regulations on the free movement of people does not allow temporary discrimination between existing residents and new immigrants. This means that existing domestic workers and residents suffering the consequences of population growth cannot be compensated through targeted redistribution measures.

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Implicit discrimination

The free movement of people in the EU is threatened not only by possible withdrawals, but also by their effects in countries like France or Italy. The ban on explicitly preferring natives has paradoxically led to increasing implicit protection of natives or to indirect discrimination against immigrants. Instruments such as minimum wages and protection against dismissal in the labor market as well as rent controls and other housing market regulations play a role. These measures are permissible under EU law because they do not expressly favor locals, but generally job and living space holders over market entrants; Of course, the latter also include young locals. The result is a growing gap between generations in some EU countries: many older people have very well-paid jobs and live in large, relatively inexpensive apartments, while young people often move from internship to internship and live in sublets at high costs. The inadequate integration of certain population groups into the labor market, which is seen as a cause of extremist tendencies, is also partly due to implicit discrimination measures, which are an indirect consequence of the ban on explicit discrimination against immigrants. All of this does not mean that the free movement of people is solely responsible for these problematic government regulations, but it does contribute to them being used to indirectly discriminate against immigrants.

Market integration with conditional freedom of movement of people

It would be in both the economic and political interests of EU citizens to conclude comprehensive free trade agreements with Turkey and other neighboring countries such as Ukraine or the Mediterranean countries. At the same time, it would be in the interest that trade in goods and services with countries like Great Britain or Switzerland is basically as free as within the EU. Until now, the usual path to deepening economic relations has been through EU membership. In the long term, this would also give poorer countries the freedom of movement of people they want, but which the EU often sees as problematic for them – the opposite is the case for countries that are wealthier than the EU average.

An alternative strategy would be as follows: The EU could work with Great Britain and Switzerland to develop a market opening agreement that offers complete freedom of trade and services, but makes the free movement of people subject to certain conditions. As long as migration flows are largely balanced and symmetrical over the average of several years, immigration should remain completely free. If migration becomes increasingly asymmetrical, leading to strong population growth in the destination countries, temporary migration taxes could be introduced or social benefits for immigrants could be adjusted, as is already the case in Great Britain.

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With such a transitional system, freedom of movement in the sense of individual freedom of movement could continue to exist without bureaucratic requirements. Part of the revenue from migration taxes or savings in social benefits could be used to benefit the immigrants’ countries of origin. Such an agreement would also integrate Turkey and other EU neighbors without negative connotations. Ultimately, the approach of conditional freedom of movement of people with migration taxes could also be applied within the EU itself. As long as migration flows are balanced, no changes would occur. The system would only take effect if migration movements were highly asymmetrical, meaning that the implicit discrimination measures that exist today, which are increasingly putting a strain on the market, prosperity and social peace, would become superfluous and could be completely abolished.

This article is based on the scientific article: Eichenberger, Reiner and David Stadelmann (2017). Immigration taxes to maintain the free movement of people. WiSt, 10/2017: 23-27.

Blog posts in the series: Free movement of people

Klaus F. Zimmermann (GLO, 2023): EU free movement of people in danger. Is mobility, the growth engine, stuttering?

Norbert Berthold (JMU, 2024): Internal market, euro and migration. Europe needs more mobility, not less!

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