Skilled migration and education policies: Is there still scope for a Bhagwati tax?

Recent literature has criticized the Bhagwati ‘brain drain tax’ because it may 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 the remaining 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 if a fiscal burden borne by migrants might be outweighed by a higher human capital and gross income.