Legal Status and Local Spending: The Distributional Consequences of the 1986 IRCA

We examine the political response to immigrant legalization and its subsequent impact on the distribution of state and local spending by exploiting variation in legal status arising from the 1986 Immigration Reform and Control Act (IRCA), which legalized 3 million immigrants in the United States. We find that governors, of whatever party affiliation, allocate more per capita resources to counties affected by the IRCA. This effect is amplified when the governor is eligible for re-election, faces political competition, enjoys line-item veto power or is politically aligned with the state legislature, supporting a view that the distributional response is politically motivated. Individuals residing in counties affected by the IRCA tend to vote more in gubernatorial elections and a governor’s likelihood of reelection increases in the share of legalized migrants in a given state. We find no evidence of anti-migrant sentiment confounding our results. Finally, counties that received more transfers because of the IRCA spend more on education and, subsequently, experience improvements in Hispanic high school completion rates, suggesting that the distributional response is targeted to the newly legalized who were eligible to vote five years after legalization. Overall, our work helps understand the role of local public expenditure as a channel linking legal status to a wide range of socio-economic benefits, as documented by the literature.