Delving into mechanisms, the research reveals that although E-Verify adoption corresponds with a decline in tax revenues attributable to undocumented immigrants—spanning property, sales, and individual income taxes—this revenue loss is offset by proportionate reductions in government expenditures, particularly in education and social welfare. These fiscal adjustments culminate in a meaningful contraction of local government deficits, which likely drives improved credit perceptions among bond investors.

Importantly, the study finds E-Verify mandates successfully reduce the estimated undocumented immigrant populations in states where they are enacted, thereby achieving their intended labor market impact. This demographic shift reinforces the fiscal improvements observed.

The magnitude of borrowing-cost reductions is not uniform but shaped by contextual factors. States with larger undocumented populations see a more pronounced effect, as enforcement reshapes their labor and fiscal landscapes more substantially. States with stronger enforcement capacity—proxied by lower corruption—experience amplified benefits, highlighting the role of credible policy execution. By contrast, states economically reliant on undocumented labor show muted effects, reflecting investors’ nuanced consideration of potential trade-offs between enforcement benefits and economic disruptions. Additionally, states characterized by more negative public sentiment toward undocumented immigrants, as measured through Google search indices, also register greater reductions in borrowing costs, suggesting socio-political climate influences market perceptions.

Both public-sector and universal E-Verify mandates reduce borrowing costs, with universal mandates exerting somewhat stronger impacts, reflecting the broader scope of labor market coverage.