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Math Help - Calculating how much immigrants affect the GDP

  1. #1
    Senior Member Paze's Avatar
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    Calculating how much immigrants affect the GDP

    Hi. I have an assignment:

    Immigrants make up 11% of a country's population while increasing its GDP by 0,9%.

    40% of the GDP comes from tax revenue.

    Is the country gaining or losing revenue by having an immigrant work force?


    My approach is taking, say $1000 and then stating that $400 comes from tax revenue. $44 should come from immigrants and $356 from natives (11% and 89%). Then take $1000*0,9% to conclude that the immigrants, while only needing to contribute $44, are actually contributing $90.

    Are my calculations correct? This is a recreational assignment, so any tips and comments are appreciated.
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  2. #2
    MHF Contributor ebaines's Avatar
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    Re: Calculating how much immigrants affect the GDP

    No, it's not correct. First you need to define better what it is you're trying to figure out. GDP is NOT the same as revenue (by which I think you may mean governmemnt revenue, or more specifically tax revenue). Your question as stated: "is the country gaining or loosing revenue" is simple to answer, assuming that at least some immigrants pay taxes - the governement is gaining those taxes the immigrants pay. But if what you really meant to ask is this: do immigrants contribute to the growth of GDP at the same rate as the rest of the population" the answer is no - because using your data they represent 11% of the population and so you would expect they would contribute 11% of GDP, but they contribute less than that. So again - what is it you're trying to determine?
    Last edited by ebaines; June 17th 2013 at 11:04 AM.
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  3. #3
    Senior Member Paze's Avatar
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    Re: Calculating how much immigrants affect the GDP

    Quote Originally Posted by ebaines View Post
    No, it's not correct. First you need to define better what it is you're trying to figure out. GDP is NOT the same as revenue (by which I think you may mean governmemnt revenue, or more specifically tax revenue). Your question as stated: "is the country gaining or loosing revenue" is simple to answer, assuming that at least some immigrants pay taxes - the governement is gaining those taxes the immigrants pay. But if what you really meant to ask is this: do immigrants contribute to the growth of GDP at the same rate as the rest of the population" the answer is no - because using your data they represent 11% of the population and so you would expect they would contribute 11% of GDP, but they contribute less than that. So again - what is it you're trying to determine?
    Thanks and sorry for my poorly worded problem. It is obvious that I do not understand it wholly myself and therefore your comment is much needed and appreciated.

    But as the GDP of the country is not solely relying on taxes from its citizens (only 40% of the GDP does)...Don't we expect the immigrants to simply pay 11% of those 40%? In other words 4,4%? While the natives should be paying 35,6%.

    That still means that the immigrants are underpaying their share, but am I understanding the problem better now?
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    MHF Contributor ebaines's Avatar
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    Re: Calculating how much immigrants affect the GDP

    I think the way you've stated it is better -you would expect 11% of the population to pay 11% of the taxes, or 4.4% of the 40% of GDP attributable to taxes. I would challenge the assumption that the 0.9% of contribution to GDP made by immigrants is solely due to tax revenues from them. You've provided no data as to the source of the other 60% of GDP, and what percent of that is attributable to immigrants versus native-born. GDP is a measure of economic activity which includes spending by individuals on goods and services, which you haven't addressed. So I would say that while your conclusion is correct given the data provided, it is incomplete.
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