Skilled Migration and Education Policies: Is There Still Scope for a Bhagwati Tax?
University of Sannio - Faculty of Economics
December 22, 2009
The Bhagwati brain drain tax proposal dating back to more than thirty years ago has been criticized from different viewpoints. In particular, recent literature has pointed out that this tax would hamper accumulation of human capital by reducing gains from skilled migration. In this paper, it is argued that when taking into account social externalities of human capital, and optimal policies implemented by a government caring only for left behind residents, a brain drain tax tends rather to foster the investment in human capital and increase residents’ income and welfare. The Bhagwati tax could even be universally welfare improving. In fact, if the tax is paid by migrants in addition to the ordinary income taxation, their larger fiscal burden might be outweighed by a higher human capital and gross income. Alternatively, if the transfer is financed by the destination country, its fiscal losses might be outweighed by the advantage of more skilled immigrants.
Number of Pages in PDF File: 23
Keywords: Skilled migration, brain drain, education policies, Bhagwati tax
JEL Classification: H52, J24, O15working papers series
Date posted: December 27, 2009
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