Using exogenous tax variation to identify the effect of municipalities’ financial condition on the integration outcome of refugees in Norway.

2016

The inflow of refugees to Europe in the past few years has motivated us to study the outcome of

integration of refugees. The Norwegian settlement policy of refugees implies that refugees are assigned

to municipalities across the country and that the local governments are responsible for the integration

process. In this paper, we rely on an instrumental variable approach where we exploit exogenous variation

in tax revenues between municipalities to identify the effect of municipalities’ financial condition on the

integration outcome of refugees. Exogenous variation, both in terms of the settlement of refugees and

municipalities’ tax revenues, allows us to estimate a causal effect. The analyses are performed on a sample

of 24 wealthy municipalities, where their neighboring municipalities are used as a counterfactual. We

measure integration by the variables earnings and social security benefits, by the use of registry data

from Statistics Norway. The time period studied is 2005 - 2010, as refugees arriving in this period were

exposed to the same treatment in terms of the integration and settlement policies. Little research has

been done on municipalities’ financial condition and integration outcome of refugees in Norway. This

paper therefore aims to make a contribution to the literature. For earnings, we find that the estimated

coefficients of unrestricted income are somewhat contradictory and sensitive to various specifications.

This suggests that we cannot tell whether an effect is present. For social security benefits, we do not find

evidence that refugees settled in wealthier municipalities, receive lower/higher levels of social security

benefits. This suggests that more research in this field is necessary to obtain knowledge of how economic

resources affect integration outcome, which can have implications for policy design.