EU Free Movement of People and the Danish Welfare State. A Positive Fiscal Impact. – Københavns Universitet

Center for Europæisk Politik > Formidling > CEP-klummer > April 2017 Column by p...

EU Free Movement of People and the Danish Welfare State. A Positive Fiscal Impact.

By professor Dorte Sindbjerg Martinsen (,
Department of Political Science, University of Copenhagen. 

With the UK’s Brexit referendum and the US election of Donald Trump, borders and economic nationalism have become centre stage, while European integration and globalisation falter. In the time leading up to the UK referendum, one of the main themes was the relationship between EU immigration and the British welfare state. EU citizens on the British labour market – and their rights to welfare benefits– resulted in a heated, polarised debate and the UK voted Leave.

In Denmark, the EU free movement of people and their rights to Danish welfare have also been intensively debated and politicised. Fear of ‘welfare tourism’ has been widely expressed. But what is the actual fiscal impact of EU citizens working and residing in DK and thus becoming entitled to Danish welfare? The Danish welfare state constitutes a critical case for examining the fiscal impact of EU free movement, being a tax-financed, relatively generous welfare state with the highest share of non-contributory benefits across the EU. Together with Gabriel Pons Rotger, from SFI, I have recently concluded a study of EU citizens’ contribution to and use of Danish welfare benefits and services from 2002 to the end of 2013. By means of Danish register data we have gained access to a 100 % population of EU citizens’ contribution to and consumption of Danish welfare between 2002 to the end of 2013. We have thus examined the welfare impact during 12 years of significant EU change; the EU enlargement in 2004 and again in 2007 with ten new Eastern European member states along with Cyprus and Malta, changes in EU’s laws regarding residency and cross-border welfare rights, the financial crisis 2008-2010 and, finally, the termination of the Danish transitional arrangements for the free movement of people from the new member states in 2009. These changes could assumedly result in a larger consumption of Danish welfare as the internal borders in the EU opened up to a much bigger population.

EU citizens are net contributors

Our study shows that between 2002 and 2013, the number of EU citizens residing in Denmark rose significantly from app. 54,000 citizens to 160,000. Which fiscal impact did the rising EU immigration then have for the Danish Welfare State? In order to be able to answer this question, we compiled administrative data on all EU citizens contributions by means of taxes, VAT (indirectly calculated) and labour market contribution and held it up against the welfare expenditures of cash benefits, service benefits and the average expenditures for public goods. It is important to emphasise that we chose to include average calculations of public goods and to use a conservative calculation of the remittances on VAT payments from EU citizens in their first five years of residence in order not to overestimate the contributions or underestimate expenses. Similarly, it needs to be stated that we were not able to include corporate tax as contribution. Had we chosen a less conservative method, the net contribution had been significantly higher.

Our objective has been to bring comprehensive knowledge into the public and political debate of the relationship between EU immigration and the welfare state. Overall, the study shows that the EU citizens have been net contributors in the time period – both accumulated and on average. In 2013, the EU citizens’ net contribution to the Danish welfare system was 3.4 billion DKK while the average EU citizen contributed with app. 21,000 DKK. As a group, the EU citizens’ net contribution rises over the years except during the financial crisis in 2008-2010, while the average EU citizen’s net contribution was higher in 2002 than in 2013. In detail, the study shows that the EU citizens are overrepresented in the ‘working age group’ compared to the Danish population as a whole. The overrepresentation is highest for the EU citizens from the new member states. EU citizens from the new member states contribute on average less than citizens from the old member states because of a lower average income but, at the same time, they do not use welfare benefits to the same extent.

The overall conclusion from the study is that EU citizens have contributed to financing the Danish welfare state – throughout a period of significant economic and political changes. Other important findings could be noted. On a general note, however, the profile of EU migrants in Denmark should cause us to rethink the argument that EU free movement burdens the welfare state. Our findings point out that migrants are relatively young, contribute financially, and do not tend to stay over the long term.

The study is financed by Norface via the programme ‘Welfare State Futures’. Download the working paper here