Illegal Migration and Consumption Behavior of Immigrant Households

Abstract

We analyze the effect of immigrants’ legal status on their consumption behavior using unique survey
\ndata that samples both documented and undocumented immigrants. To address the problem of
\nsorting into legal status, we propose two alternative identification strategies as exogenous source of
\nvariation for current legal status: First, transitory income shocks in the home country, measured as
\nrainfall shocks at the time of emigration. Second, amnesty quotas that grant legal residence status to
\nundocumented immigrants. Both sources of variation create a strong first stage, and—although very
\ndifferent in nature—lead to similar estimates of the effects of illegal status on consumption, with
\nundocumented immigrants consuming about 40% less than documented immigrants, conditional on
\nbackground characteristics. Roughly one quarter of this decrease is explained by undocumented
\nimmigrants having lower incomes than documented immigrants. Our findings imply that legalization
\nprograms may have a potentially important effect on immigrants’ consumption behavior, with
\nconsequences for both the source and host countries. (JEL classification: F22, D12, K42).