Based on a welfare-maximization model of skilled migration where education generates a positive externality, I examine whether the early view regarding brain drain’s (BD) negative impact on source countries – and its associated optimal Bhagwati tax – is compatible with the recent more optimistic BD-induced brain gain view. I derive the BD’s impact on education and welfare, the optimal education subsidy, and a combination of the optimal subsidy and the Bhagwati tax, when the weight of residents in the government’s objective function, which is equal to \(\:1\) , is larger than the weight of emigrants. Some of the findings are: i) Education, welfare, and the optimal subsidy, are higher under an open than under a closed economy if emigrants’ weight is greater than the source country’s income relative to the host country’s income, and they are lower in the opposite case; ii) The optimal subsidy increases and the optimal Bhagwati tax decreases with emigrants’ weight in the government’s objective function; iii) A policy instrument (like the Bhagwati tax) is beneficial when constraints exist on changes in the other one (like the optimal subsidy). Assuming a low emigrants’ weight in the government’s objective function, opening up the economy implies a lower education subsidy, so that raising the Bhagwati tax should be beneficial if, as is typically the case, education is viewed as a right and parents’ and teachers’ organizations as well as the education ministry and education bureaucracy make it politically difficult if not impossible to reduce the education subsidy; and iv) Finally, proposals for collecting the Bhagwati tax are presented.
