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Schiff, Maurice
Year of Publication: 
Series/Report no.: 
GLO Discussion Paper 262
Based on a welfare-maximization model of skilled migration where education generates a positive externality, this paper examines whether the early view regarding brain drainโ€™s (BD) negative impact on source countries โ€“ and the Bhagwati tax (๐ต๐‘‡) associated with it โ€“ is compatible with the recent more optimistic BD-induced brain gain view. I derive BDโ€™s impact on education, welfare, the optimal education subsidy (๐‘ ), and a combination of ๐‘  and (the optimal) ๐ต๐‘‡, when residentsโ€™ (emigrantsโ€™) weight in the governmentโ€™s objective function is 1 (1โˆ’๐›ฝ), with ๐›ฝ ๐œ– [0,1]. I find that: i) education, welfare and ๐‘  levels are higher (lower) under an open than under a closed economy for 1โˆ’๐›ฝ>(<) ๐‘ฆ0/๐‘ฆ๐‘‘, the ratio of origin-country to destination-country income; ii) ๐‘  and ๐ต๐‘‡ are โ€˜policy complements,โ€™ i.e., they are positively related; and iii) ๐ต๐‘‡ increases with ๐›ฝ, reaching a maximum at ๐›ฝ=1 (where government only care about residents). Two implications and a proposal are: a) The early literature focused on resident โ€“ rather than on migrant โ€“ welfare (the ๐›ฝ=1 case), which is precisely the case where ๐ต๐‘‡ is largest; b) A second policy instrument should be useful, especially if constraints exist on making changes in the other. Thus, as opening up the economy implies a lower ๐‘ , raising ๐ต๐‘‡ should be beneficial if, say, parentsโ€™ and teachersโ€™ organizations make it politically difficult if not impossible to reduce ๐‘ ; c) A proposal for collecting the tax is presented.
Brain drain
brain gain
Bhagwati tax
education subsidy
Document Type: 
Working Paper

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