The Fiscal Effect of Immigration: Reducing Bias in Influential Estimates

The increase in the marginal product of capital that would otherwise accompany the employment of the marginal immigrant worker can simply induce the marginal dollar of unutilized capital to be utilized, without need for accumulation or construction. [...] 12 The new, second term reects the additional income needed to compensate the high-skill work- ers who enter the production function alongside the additional low-skill worker, as well as the owners of the capital that those additional high-skill workers u(se. [...] 3 Empirical elements of the adjustment Implementing this adjustment empirically requires three elements in the equation f(or n)et scal ? ? impact (10): 1) an estimate of the e ective rate of taxation on capital relative to labor at each ? ? education level; 2) an estimate of the capital share of income (? ); and 3) an estimate of immigrant 13 workers’ labor-income taxes paid and benets received. [...] This is done by normalizing the individual-level ratio of taxes paid to income at each education level, as a fraction of the ratio for the average worker, and scaling the Saez and Zucman estimate of the overall e ective tax rate on labor by that normalized ratio. [...] 5.2 Accounting for relative price effects on heterogeneous labor The preceding analysis assumes that all types of labor are perfect substitutes in production, and notes the lack of evidence for lasting eects of immigration on the relative price of capital and labor overall.